Market Snapshot
| Dow | 42454.12 | -57.88 | (-0.14%) | | Nasdaq | 18282.05 | -9.57 | (-0.05%) | | SP 500 | 5780.05 | -11.99 | (-0.21%) | | 10-yr Note | -3/32 | 4.10 |
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| | NYSE | Adv 1098 | Dec 1583 | Vol 795 mln | | Nasdaq | Adv 1708 | Dec 2525 | Vol 5.8 bln |
Industry Watch
| Strong: Energy, Information Technology, Materials |
| | Weak: Real Estate, Industrials, Communication Services, Consumer Staples, Health Care |
Moving the Market
-- Reacting to inflation and labor market data, which showed an increase in core-CPI and an increase in jobless claims
-- Mixed response in Treasury market to this morning's data
-- Selling interest after recent gains
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Closing Summary
10-Oct-24 16:20 ET
Dow -57.88 at 42454.12, Nasdaq -9.57 at 18282.05, S&P -11.99 at 5780.05
[BRIEFING.COM] There was a negative bias in the equity market through the entire session on below-average volume. Downside moves were relatively limited, though. The equal-weighted S&P 500 dropped 0.4% and the market-cap weighted S&P 500 fell 0.2%.
Participants were reacting to some mixed economic data. The September Consumer Price Index report was hotter-than-expected at the headline (actual 0.2%; expected 0.1%) and core (actual 0.3%; expected 0.2%) level. The year-over-year growth rate of core-CPI increased to 3.3% from 3.2% in August and the growth rate of headline CPI slowed to 2.4% from 2.5% in August.
Some positive news from the report was that the shelter component, which has been the biggest driver of core inflation, saw its smallest increase (+0.2%) since June.
Investors also received weekly jobless claims, which totaled 258,000 versus last week's count of 225,000.
The market is still feeling optimistic about the Fed cutting rates by 25 basis points at the November FOMC meeting after this morning's data and after comments from a voting member of the committee. Atlanta Fed President Bostic said he is open to skipping a November rate cut, according to The Wall Street Journal.
The fed funds futures market now sees an 82.9% probability of a 25 basis point rate cut at the November FOMC meeting, little changed from 80.3% yesterday and up from 67.9% a week ago, according to the CME FedWatch Tool.
Treasuries settled mixed in response to this morning's data, and in response to a stellar 30-yr offering. The 10-yr yield settled three basis points higher at 4.10% and the 2-yr yield settled two basis points lower at 4.00%.
Elsewhere, oil prices continued climbing after recent losses. WTI crude oil futures settled 3.5% higher at $75.86/bbl. This price action helped boost the S&P 500 energy sector (+0.8%).
The only other sectors to close higher were information technology (+0.1%) and materials (+0.2%). The real estate sector (-0.9%) logged the largest decline followed by communication services (-0.6%).
- Nasdaq Composite: +21.8% YTD
- S&P 500: +21.2% YTD
- Dow Jones Industrial Average: +12.6% YTD
- S&P Midcap 400: +11.6% YTD
- Russell 2000: +8.0% YTD
Reviewing today's economic data:
- Weekly Initial Claims 258K (Briefing.com consensus 229K); Prior 225K, Weekly Continuing Claims 1.861 mln; Prior was revised to 1.819 mln from 1.826 mln
- The key takeaway from the report is the jump seen in initial jobless claims, which was presumably influenced in part by Hurricane Helene but not entirely. On an unadjusted basis, initial jobless claims totaled 234,780, an increase of 53,570 from the previous week. Seasonal factors, according to the Department of Labor, had expected an increase of 23,665 from the previous week.
- September CPI 0.2% (Briefing.com consensus 0.1%); Prior 0.2%, September Core CPI 0.3% (Briefing.com consensus 0.2%); Prior 0.3%
- The key takeaway from the report is that the core rate increased year-over-year even though the shelter component, which has been the biggest driver of core inflation, saw its smallest increase (+0.2%) since June.
Friday's economic calendar features another look at inflation in the form of the September Producer Price Index at 8:30 ET. The preliminary October University of Michigan Consumer Sentiment survey will be released at 10:00 ET.
Treasuries settle mixed after inflation data and bond auction
10-Oct-24 15:35 ET
Dow -134.40 at 42377.60, Nasdaq -33.10 at 18258.52, S&P -19.41 at 5772.63
[BRIEFING.COM] The market moved mostly sideways at the index level in recent action.
The Treasury market had a mixed showed after this morning's release of the hotter-than-expect September Consumer Price Index. Bonds were also reacting to a stellar 30-yr offering. The 10-yr yield settled three basis points higher at 4.10% and the 2-yr yield settled two basis points lower at 4.00%.
Friday's economic calendar features another look at inflation in the form of the September Producer Price Index at 8:30 ET. The preliminary October University of Michigan Consumer Sentiment survey will be released at 10:00 ET.
Growth outperforms value
10-Oct-24 15:05 ET
Dow -170.57 at 42341.43, Nasdaq -40.78 at 18250.84, S&P -23.09 at 5768.95
[BRIEFING.COM] The S&P 500 (-0.4%) and Dow Jones Industrial Average (-0.4%) trade near session lows while the Nasdaq Composite remains near yesterday's close.
Growth stocks are holding better than value stocks. The Russell 3000 Growth Index sports a 0.3% decline versus a 0.6% decline in the Russell 3000 Value Index.
The 10-yr yield remains near its intraday high at 4.09%. The 2-yr yield moved up to 4.00% again.
S&P 500 pressured by real estate, solar stocks
10-Oct-24 14:25 ET
Dow -148.59 at 42363.41, Nasdaq -30.95 at 18260.67, S&P -17.71 at 5774.33
[BRIEFING.COM] The S&P 500 (-0.31%) is in second place on Thursday, down about 18 points.
Elsewhere, S&P 500 constituents First Solar (FSLR 204.75, -21.30, -9.42%), Advanced Micro (AMD 163.55, -7.47, -4.37%), and Verisk Analytics (VRSK 267.48, -9.58, -3.46%) pepper the bottom of the average. FSLR was the subject of a cautious analyst report, AMD falls despite announcing new AI chips.
Meanwhile, CrowdStrike (CRWD 311.64, +13.30, +4.46%) is near the top of the standings, shrugging off details from Delta Airlines (DAL 49.79, -1.04, -2.05%) about the impact of CRWD's July outage on its business.
Gold higher on Thursday
10-Oct-24 13:55 ET
Dow -139.53 at 42372.47, Nasdaq -21.11 at 18270.51, S&P -15.10 at 5776.94
[BRIEFING.COM] The Nasdaq Composite (-0.12%) has dipped back into the red in the last half hour. In corporate news, over the last half hour TD Bank (TD 59.35, -3.14, -5.02%) announced a resolution of previously disclosed investigations related to its U.S. Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance programs.
Gold futures settled $15.80 higher (+0.6%) to $2,641.80/oz, propelled higher as Fed rate cut bets rise amid inflation and jobless data.
Meanwhile, the U.S. Dollar Index is up about +0.1% to $103.00.
E2open tumbles to 2024 lows as delays in closing deals erodes FY25 guidance (ETWO)
E2open (ETWO -20%) tumbles to lows on the year after a top-line miss in Q2 and reduced FY25 guidance sours investor sentiment today. ETWO is a cloud-based supply chain management software provider, competing in a field crowded with large tech firms like IBM (IBM) and SAP (SAP), as well as several smaller players.
The company is currently amid a plan to return to positive revenue growth following six straight quarters of negative growth. Providing a SaaS platform, ETWO depends primarily on subscription revenue, which was still down yr/yr in Q2 (Aug). However, the company did notice signs of progress from Q1 (May). The good news is that management believes its subscription business has stabilized and is poised to improve over the coming quarters.
- Unfortunately, the good news mostly stops there. During Q2, large deals continued to take longer than expected to close, a situation ETWO attributed to extended customer timelines. Elongated deals and higher scrutiny have plagued the enterprise software industry over the past several quarters. IT consulting firms Endava (DAVA) and Accenture (ACN) are two prime examples of organizations dealing with these obstacles.
- The economic climate is causing ETWO's organic growth plan to progress slightly slower than it modeled. Still, management is confident that because of its high win rates on deals at advanced stages of development, it anticipates closing many delayed Q2 deals over the next few months.
- Nevertheless, the delay eroded ETWO's confidence in its previous FY25 outlook. The company anticipates revs of $607-617 mln, down from $630-645 mln and adjusted EBITDA to now land toward the low end of its previous $215-225 mln guidance.
Feeling the sting of the macroeconomic environment, ETWO delivered a subpar Q2 report. Investors can be encouraged by deals potentially eventually closing, ultimately pushing revenue into later quarters. However, this offers little solace considering how long ETWO has struggled to reignite growth. Shares could remain stuck near 2024 lows until the company proves its strategies are bearing tangible top-line results.
Delta Air Lines on bumpy ride this morning after issuing mixed Q3 earnings report (DAL)
The CrowdStrike (CRWD) outage that began on July 19 and lasted for five days created plenty of turbulence in Q3 for Delta Air Lines (DAL), which missed quarterly EPS expectations for the second quarter in a row. Specifically, the outage created a $380 mln headwind to revenue while cutting into DAL's EPS by $0.45 due to customer refunds for canceled flights and increased crew-related costs. However, since DAL already telegraphed that its Q3 results took a sizable hit from this event when it lowered its guidance on September 12, the quarterly estimates should have mostly reflected the negative impacts.
Furthermore, the company's Q4 revenue guidance for growth of 2-4% fell short of expectations, adding to the disappointment, as CEO Ed Bastian disclosed that there's some weakness in bookings around the U.S. elections in November.
- In terms of DAL's mixed Q3 results, the 5.7% yr/yr increase in non-fuel CASM is one metric that stands out. On September 12, the company guided for an increase of approximately 5.5%, so non-fuel expenses came in slightly higher than it projected, playing a role in the small EPS miss. On its own, the CRWD outage was responsible for a 3.2% jump in non-fuel CASM.
- Unit revenue is another metric that has garnered plenty of attention lately. After a couple of years of adding capacity to meet the robust demand for travel, an imbalance in supply and demand formed as that demand cooled this year, putting downward pressure on fare prices. That trend continued in Q3 as adjusted total unit revenue (TRASM) decreased by 3.6% yr/yr, including a 1.1 point impact from the outage.
- The good news, though, is that DAL commented that supply growth continued to rationalize and that in September, both domestic and transatlantic unit revenue growth turned positive. On the topic of DAL's transatlantic business, which saw a 3% drop in Q3 revenue, the company noted that trends are improving as Paris demand rebounds in the wake of the Olympics.
- This combination of a rebalancing of supply and demand, improving demand in highly profitable international flights, and more normalized costs in Q4, positions DAL favorably for an upswing in profitability. In fact, the company is anticipating Q4 operating margin of 11-13%, up from the 9.4% achieved in Q3, with pre-tax profit growing 30% yr/yr to $1.4 bln.
As the first major airline to report Q3 earnings, DAL's results provide a gauge for what to expect in the coming weeks when competitors United Airlines (UAL), American Airlines (AAL), and Southwest Air (LUV) issue their results. Outside of the impacts from the CRWD outage -- which didn't affect LUV's operations -- business conditions in Q3 remained similar to that of Q2 as an oversupply of seats put downward pressure on unit revenue. The tables do appear to be turning, though, as DAL and other carriers ratchet capacity lower, setting the stage for stronger profits in Q4 and into 2025.
Domino's trades modestly higher on large EPS beat, decent comps, but intl remains a drag (DPZ)
Domino's Pizza (DPZ +2%) is modestly higher after reporting a Q3 EPS beat. Revenue rose 5.1% yr/yr to $1.08 bln, which was in-line-ish, maybe a bit soft. Its US comps were decent and its recently launched UberEats partnership is showing early signs of success as it accounted for 2.7% of total sales in Q3. However, the company also was a bit cautious on its lower income consumer cohort and DPZ lowered its 2024 guidance for global net store growth yet again.
- US comps came in at +3.0%, which was a bit below Q2's +4.8%, but generally in-line with guidance on the last call at "+3% or more" in Q3 and Q4. Specific to Q3, DPZ had guided previously that it expected Q3 comps to be slightly below Q2 as Q3 had one fewer boost week, partially offset by a continued ramp in Uber. International comps came in at +0.8% CC.
- DPZ concedes that Q3 were impacted by a more challenging backdrop. DPZ was pleased with sales growth and its order count growth. DPZ saw positive order counts for the fourth consecutive quarter. These comps were driven by another strong quarter for carryout of 5.4% which was inclusive of high single digits in California. Where it saw maybe a little softness was with lower income customers on the delivery side.
- In terms of the menu, DPZ launched its new Mac & Cheese in late September, available in 5-Cheese and spicy buffalo, and customers can order add-ons like bacon bits. With Mac & Cheese and last year's pepperoni stuffed cheesy bread, DPZ is seeking to reignite its existing non-pizza platforms. Importantly, next week, one of DPZ's biggest value promotions ever will go back on air: Emergency pizza. It was a hit with customers and should help Q4 traffic.
- Turning to its international business, retail sales were up 6.5% YTD. While that growth is in-line with the global pizza category, DPZ feels it was below expectations. The impact of macroeconomic pressures, geopolitical issues, and the other issues are creating a drag on international sales. Given this performance, DPZ believes planning for +1-2% comp growth in 2024 and 2025 is a more realistic expectation before returning to more normalized levels in 2026.
- Another issue on the international side is DPZ once again lowering its outlook for new store growth. In its Q2 report, it lowered its FY24 global net store growth to 825-925, and today that was lowered again to 800-850. The shortfall is mostly on the international side from challenges in both openings and closures being faced by Domino's Pizza Enterprises (DPE), one of its master franchisees.
Overall, we see a lot of cross currents in DPZ's Q3 report. On the positive side, comps were pretty good in the face of macro pressures. Also, the company is doing well on the cost side as illustrated by the big EPS upside. Uber was a positive and we are happy to hear its popular Emergency Pizza promotion is returning. However, DPZ's core lower income customers are showing some weakness and international sales have been soft plus we saw another reduction in its new store growth guidance, which was disappointing.
Tesla moving lower ahead of its RoboTaxi unveiling tonight; roadblocks still stand in its way (TSLA)
Tesla (TSLA) is looking to amp up investors tonight with the unveiling of its highly-anticipated RoboTaxi. While shares have pulled back from late September highs, they have charged around +30% higher since August lows, potentially leading into a "buy the rumor, sell the news" reaction tomorrow.
- TSLA's autonomous, full-self-driving technology has been promised for years but has only encountered numerous delays. Its event tonight had already been delayed, perhaps foreshadowing the launch roadmap of the RoboTaxi. However, CEO Elon Musk views autonomy as the driver of TSLA's future growth, recommending shareholders sell their stock if they do not believe the company can solve autonomy. Therefore, even if further delays occur, Mr. Musk is serious about overcoming hurdles and eventually launching a fully working RoboTaxi.
- Competition remains a roadblock. Ride-sharing titan Uber (UBER) announced in August that it partnered with General Motors' (GM) Cruise to bring autonomous vehicles to its platform. Additionally, big tech firms, from Google's (GOOG) Waymo to Amazon's (AMZN) Zoox, are battling for a piece of the lucrative autonomous transport market. Mr. Musk mentioned in July that certain estimates peg the market at around $5.0 trillion.
- Regulations could pose a major speedbump in deploying driverless vehicles across the U.S. and international markets. Mr. Musk stated previously that regulatory approval is a significant gating factor for its RoboTaxi. If injuries or fatalities occur as a direct result of the RoboTaxi, regulatory bodies will likely step in aggressively to curb future disasters, potentially creating lengthy delays.
- TSLA is looking to drive into the next era of growth at a time when macroeconomic conditions are weak and EV demand is fading. Stellantis (STLA) recently slashed its FY24 guidance in the wake of intensifying demand headwinds, following comments last month that 2025 would remain challenging on the EV side. Meanwhile, Toyota (TM) reportedly pushed back EV production in North America last week to the first half of 2026 amid slowing sales.
TSLA has already leaned heavily on incentives to move cars and steer through the unfavorable macroeconomic climate, eroding margins. Bringing a new product to market can eat up capital at a difficult time, potentially weighing on profitability, particularly if delays occur. Therefore, even if tonight's RoboTaxi event spurs excitement, given how much stands in TSLA's path, there is a significant hill to climb in the short run.
Lastly, keep an eye on NVIDIA (NVDA) following the unveiling. TSLA is relying on NVDA's flagship GPUs to power its next-gen Tesla AI technology. Autonomous vehicles would operate around 50-60 hours a week, relying on hundreds of hours of AI inference, putting considerable dependence on NVDA's hardware. TSLA could touch on order numbers or potential capital spending on NVDA hardware during the event, possibly triggering another push higher for the chip giant.
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.
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