Market Snapshot
| Dow | 42863.86 | +409.74 | (0.97%) | | Nasdaq | 18342.94 | +60.89 | (0.33%) | | SP 500 | 5815.03 | +34.98 | (0.61%) | | 10-yr Note | -1/32 | 4.07 |
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| | NYSE | Adv 2167 | Dec 556 | Vol 799 mln | | Nasdaq | Adv 3073 | Dec 1154 | Vol 5.1 bln |
Industry Watch
| Strong: Financials, Industrials, Utilities, Materials, Real Estate, Energy |
| | Weak: Consumer Discretionary, Information Technology |
Moving the Market
-- Leadership from financial sector after earnings results from big banks
-- Digesting the September PPI report, which showed ongoing pricing pressures for producers
-- Responding to consumer sentiment data, which was weaker than expected
-- Rate cut expectations remain steady after data
-- Treasury yields moving lower, providing added support to equities
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Closing Summary
11-Oct-24 16:20 ET
Dow +409.74 at 42863.86, Nasdaq +60.89 at 18342.94, S&P +34.98 at 5815.03
[BRIEFING.COM] The stock market closed a choppy week with a strong rally. The Dow Jones Industrial Average (+1.0%) and S&P 500 (+0.6%) closed at all-time highs, which had the S&P 500 above 5,800 for the first time and left the DJIA more than 400 points higher. The Nasdaq Composite logged a 0.3% gain and the Russell 2000 outperformed its peers, jumping 2.1%.
Tesla (TSLA 217.80, -20.97, -8.8%) was left out of the everything rally following a disappointing reveal of its robotaxi. Other corporate news items acted as support for the broader market, including earnings results from JPMorgan Chase (JPM 222.28, +9.44, +4.4%), Wells Fargo (WFC 60.98, +3.23, +5.6%), and BlackRock (BLK 990.48, +34.89, +3.7%).
Bank of America (BAC 41.95, +1.98, +5.0%) was another influential winner despite news that 10% owner Berkshire Hathaway's Warren Buffett sold roughly $382 million worth of BAC shares.
The price action in the aforementioned names led the S&P 500 financial sector to close at the top of the leaderboard, up 2.0% from yesterday, and led the consumer discretionary sector to close at the bottom of the pack, showing a 0.4% loss.
The rally followed this morning's economic data, which included the September Producer Price Index and preliminary consumer sentiment data from October, which led the market to believe that the Fed won't stop cutting rates.
The Treasury market had a muted response to this morning's data. The 10-yr yield settled two basis points lower today, and nine basis points higher this week, to 4.07%. The 2-yr yield settled six basis points lower today, and one basis point higher this week, to 3.94%.
- Nasdaq Composite: +22.2% YTD
- S&P 500: +21.9% YTD
- Dow Jones Industrial Average: +13.7% YTD
- S&P Midcap 400: +13.4% YTD
- Russell 2000: +10.2% YTD
Reviewing today's economic data:
- September PPI 0.0% (Briefing.com consensus 0.1%); Prior 0.2%, September Core PPI 0.2% (Briefing.com consensus 0.2%); Prior 0.3%
- The key takeaway from the report is that producers are still tangling with elevated prices, excluding food and energy, which means the Fed is still going to have to tangle with inflation data that will make it harder at this stage to justify aggressive rate cuts.
- October Univ. of Michigan Consumer Sentiment - Prelim 68.9 (Briefing.com consensus 70.1); Prior 79.1
- The key takeaway from the report is that consumer sentiment picked up in September, and has been picking up as inflation pressures have moderated.
As a reminder, the bond market is closed on Monday for Columbus Day.
Treasuries settle with gains
11-Oct-24 15:35 ET
Dow +432.56 at 42886.68, Nasdaq +79.56 at 18361.61, S&P +39.41 at 5819.46
[BRIEFING.COM] The equity market sits near session highs heading into the close.
The 10-yr yield settled two basis points lower today, and nine basis points higher this week, to 4.07%. The 2-yr yield settled six basis points lower today, and one basis point higher this week, to 3.94%.
Looking ahead, the bond market is closed on Monday for Columbus Day.
Most S&P 500 sector trade up
11-Oct-24 15:05 ET
Dow +392.63 at 42846.75, Nasdaq +75.53 at 18357.58, S&P +37.42 at 5817.47
[BRIEFING.COM] The major indices trade near session highs. The S&P 500 sports a 0.6% gain on the day and a 1.1% gain on the week.
Only one S&P 500 sector trades down now -- consumer discretionary (-0.2%) -- while the remaining ten sector trade up.
The financial sector still leads the pack with a 2.0% gain, followed by industrials (+1.7%).
Uber, Grainger among top S&P 500 performers on Friday
11-Oct-24 14:25 ET
Dow +389.89 at 42844.01, Nasdaq +73.60 at 18355.65, S&P +36.56 at 5816.61
[BRIEFING.COM] The S&P 500 (+0.63%) is in second place on Friday afternoon, having moved slightly higher over the last half hour.
Elsewhere, S&P 500 constituents Uber (UBER 85.83, +7.91, +10.15%), Grainger (GWW 1083.67, +58.51, +5.71%), and Domino's Pizza (DPZ 432.12, +23.37, +5.72%) are performing well. UBER moves higher on Friday after Tesla's (TSLA 219.32, -19.45, -8.15%) Robotaxi unveiling fell short of investor expectations, GWW mirrors strength in peer Fastenal (FAST 76.83, +6.84, +9.77%), and DPZ recovers all and then some of yesterday's post-earnings dip.
Meanwhile, A.O. Smith (AOS 80.59, -5.67, -6.57%) slides after the company cut its 2024 earnings outlook amid weak demand in China.
Gold climbs out of weekly losses on Friday
11-Oct-24 14:00 ET
Dow +338.38 at 42792.50, Nasdaq +49.27 at 18331.32, S&P +30.51 at 5810.56
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.27%) is today's worst-performing major average with about two hours to go, albeit on gains of about 50 points.
Gold futures settled $37 higher (+1.4%) to $2,676.30/oz, climbing out of the red on Friday to end higher by about +0.3% this week.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $102.84.
A.O. Smith feeling a chill as soft sales in China cause water heater company to cut guidance (AOS)
A.O. Smith (AOS), a manufacturer of water heaters and boilers, is feeling a chill today as shares sink sharply lower after the company issued downside Q3 EPS and revenue guidance while also cutting its FY24 outlook. Since AOS reported mixed Q2 results in late July, business conditions have materially deteriorated, especially in China, where sales are estimated to have fallen by 17% due to lower volumes of its core water heating and water treatment products.
- In that Q2 earnings report, AOS reaffirmed its FY24 sales guidance of an increase of 3-5% in the wake of the company generating record sales of $1.0 bln for the quarter. At that time, the company was feeling mostly upbeat about its business, stating that North American water heater industry shipments remained resilient, buoyed by stable replacement demand and prebuy activity ahead of its March 1, 2024 price increase.
- However, AOS did warn in the Q2 earnings release that economic headwinds in China were persisting, giving the company some pause for the remainder of the year. Those concerns have come to fruition, as reflected in the steep fall off from the 2% sales increase in China seen last quarter.
- Unfortunately, China isn't the only soft spot. Sales in North America, which accounts for roughly 75% of AOS's total sales, were down modestly on a yr/yr basis in Q3 as both residential and commercial water heater orders were lower than expected in the quarter. Furthermore, the company believes that demand was impacted by larger-than-anticipated pre-buy activity in the first half of the year as customers looked to book orders ahead of the price increase.
- As a result of the above, AOS now sees FY24 revenue coming in at $3.8-$3.9 bln, representing a 1% decline at the midpoint of the guidance range. The good news is that the company expects to see some qtr/qtr improvement in North America water heater volumes. Additionally, India continues to be a source of strength with sales up 12% in local currency, following last quarter's increase of 16%.
The main takeaway is that China's real estate market woes are weighing heavily on AOS's business, while the high-interest rate environment here in the U.S. is creating another headwind. With China poised to launch new economic stimulus programs and with interest rates on a downward trajectory in the U.S., sales could begin to pick up again later this year and into 2025.
Tesla endures a sell-the-news response following the unveiling of its Cybercab (TSLA)
Tesla's (TSLA -7%) highly-anticipated robotaxi unveiling last night has proven to be a letdown today as a sell-the-news reaction brings shares down to one-month lows. The EV manufacturer unveiled a driverless, fully autonomous vehicle dubbed the Cybercab during its event, featuring no steering wheel or pedals since no human would be operating the vehicle. The design language mirrored the Tesla Cybertruck, hence the similar name. CEO Elon Musk estimated that the Cybercabs would cost below $30,000 and be available before 2027, shooting for sometime in 2026.
TSLA has discussed eventually producing a robotaxi for years, providing updates during quarterly conference calls on the status of its robotaxi platform design and full self-driving (FSD) improvements. A planned unveiling was announced earlier this year, finally putting years of rumors and speculation on stage in the form of a tangible product. However, the end result did not live up to the hype.
- Largely squashing excitement was TSLA's roadmap for bringing the Cybercab to market. The company does not foresee the vehicle hitting the streets for two more years despite the years spent hinting about a robotaxi and the constant improvements made surrounding FSD. For instance, in July, Mr. Musk noted that its customers will experience a step change improvement in how well-supervised FSD works with its updated 12.5 version rolling out. Combining this with TSLA's history of delayed launches, e.g., the Cybertruck, is dampening the mood today.
- Plenty of capital has already been spent on scaling FSD and other AI-related initiatives. TSLA projected over $10.0 bln in CapEx this year as it increases its spending on bringing its 50K GPU cluster online. Further capital will be required during the development of the Cybercab, possibly squeezing near-term profitability at a time when economic challenges refuse to budge.
- Competition is also not sitting idle. OEMs, from General Motors (GM) to Ford Motor (F), have self-driving features embedded in their premium vehicles. In fact, Uber (UBER) announced in August that it partnered with GM's Cruise self-driving unit to bring the technology to its platform. Meanwhile, tech firms, such as Google's (GOOG) Waymo, have been testing driverless vehicles for years.
- TSLA has downplayed the competition in the past, noting that rivals' technology is highly localized, requiring high-density mapping, making it fragile. Also, OEMS have expressed interest in licensing TSLA's FSD technology, showcasing its competitive edge.
Bottom line, competitive and economic headwinds already led to TSLA's fourth straight earnings miss in Q2, dragged down by a 180 bp contraction in automotive gross margins to almost half of what they were just two years earlier. The company's strategy has been volume over margins, relying on future success from new models, FSD, and, of course, the Cybercab, to charge growth. TSLA's long-term success hinges greatly on the production of the Cybercab having only minor setbacks. By providing a 2026 timeline, investors are worried about the amount of time between now and then for plenty to go wrong.
Wells Fargo deposits another earnings beat, but interest-rate related headwinds persist (WFC)
Amid a tough climate for the banking industry in which high interest rates have pressured loan demand while also driving funding costs higher, Wells Fargo (WFC) still delivered a solid Q3 earnings beat. Keeping a tight lid on costs -- noninterest expenses were roughly flat yr/yr -- and setting aside less for potential credit losses were two key factors behind the better-than-expected EPS. Indeed, WFC's credit quality looks solid as total net loan charge-offs decreased by nearly 15% qtr/qtr to $1.11 bln.
Another important point to keep in mind is that WFC's stock has underperformed its banking peers in 2024, setting the stage for today's outperformance. Excluding today's gains, WFC is higher by 17% on a year-to-date basis, compared to a 25% gain for JPMorgan Chase (JPM), while Citigroup (C) and Bank of America (BAC) are up by 23% and 19%, respectively.
However, WFC's overall results and outlook were mixed, at best.
- Net interest income (NII), one of the most closely monitored metrics for banks, decreased by 11% to $11.7 bln, slightly missing analysts' expectations. Like last quarter, higher funding costs weighed on NII as consumers continued to migrate towards deposit products that offer higher yields such as promotional savings accounts and CDs.
- Sluggish loan activity compounded the issue. Average loan balances were down by 3% to $32.9 bln as that migration to higher-yielding products led to lower deposit balances that were available for lending. Furthermore, the elevated interest rate environment has dampened the housing market as reflected by the modest 2% increase in home lending revenue. The news is much worse for auto lending, which dove by 24% as consumers continued to shy away from making big-ticket purchases.
- Turning to the smaller Corporate and Investment Banking segment (24% of total revenue compared to 45% for Consumer Banking and Lending), total revenue was roughly flat on a yr/yr basis at $4.91 bln. The Investment Banking unit was a bit of a disappointment with revenue dipping by $11 mln yr/yr to $419 mln. Given the recent ramp-up in IPO and merger activity, we would have expected to see some growth here.
- On the positive side, Markets revenue was up 6% yr/yr to $1.75 bln, driven by a 16% jump in FICC trading fees. Rate and structured products, in addition to municipals, saw strong trading activity during the quarter. The strength in FICC helped to offset a 24% yr/yr drop in equities revenue.
- Lastly, WFC's Wealth and Investment Management segment had a strong quarter as revenue climbed by 5% to $3.9 bln, driven by strength in the broader markets. However, the company did raise the interest rate that's paid out on some of its wealth management customers during the quarter, which played a role in the 16% yr/yr decrease in net interest income to $842 mln.
Overall, WFC executed well in a challenging business environment, but interest-rate-related headwinds are expected to persist in the near term. On that note, the company lowered its FY24 NII guidance, forecasting a drop of approximately 9%, compared to its prior outlook for a drop of 7-9%. Participants seem to be looking out further on the horizon, though, when lower interest rates next year help spur stronger demand for WFC's lending products.
JPMorgan Chase nicely higher following another hefty EPS beat (JPM)
JPMorgan Chase (JPM +4.3%) is trading nicely higher following its Q3 earnings report this morning. The company reported another healthy beat on EPS. JPM has now reported double-digit EPS beats in 8 of the past 9 quarters. Also, revenue rose 6.5% yr/yr to $43.31 bln, which was a bit better than expected. Noninterest revenue was $19.8 bln, up 11% yr/yr, while net interest income excluding Markets was $23.4 bln, up 1%.
- JPM reported a consolidated provision for credit losses (PCL) of $3.11 bln, reflecting net charge-offs of $2.1 bln and a net reserve build of $1.0 bln. Net charge-offs of $2.1 bln were up $590 mln, predominantly driven by Card Services.
- In its Consumer & Community Banking (CCB) segment, revenue fell 3% yr/yr to $17.79 bln. Banking & Wealth Mgmt revenue was $10.1 bln, down 11%, driven by lower net interest income on deposit margin compression and lower deposit balances. Home Lending revenue rose 3% to $1.3 bln. Card Services & Auto revenue was up 11% to $6.4 bln, reflecting higher interest income on higher revolving balances.
- An issue that JPM has been dealing with is customers shifting money into higher-yielding bank accounts. The good news is that, with the Fed now cutting rates, JPM feels like right now it's pretty much in the trough. When you look at yield-seeking behavior, that has come down quite a bit, so that's no longer as much of a headwind as it has been in the past.
- In its Commercial & Investment Bank (CIB) segment, revenue rose 8% yr/yr to $17.02 bln with IB revenue jumping 29% yr/yr to $2.4 bln. In light of the positive momentum throughout the year, JPM is optimistic about its pipeline but the M&A regulatory environment and geopolitical situation are continued sources of uncertainty. Asset & Wealth Mgmt segment revenue rose 9% yr/yr to $5.44 bln, driven by growth in management fees on higher average market levels and strong net inflows.
- In terms of the macro view, CEO Jamie Dimon says JPM has been closely monitoring the geopolitical situation and recent events show that conditions are treacherous and getting worse. Also, while inflation is slowing and the US economy remains resilient, several critical issues remain, including large fiscal deficits, infrastructure needs, restructuring of trade, and remilitarization of the world.
- An interesting question on the call was asking Dimon if he might serve in the new administration. He thinks the chance of that is almost nil and he would probably not do it but he reserves the right to do so. Dimon expects he will be doing his current job for a long period of time or "at least until the board kicks me out."
Overall, we think the upside EPS/revenue results coupled with robust growth in investment banking and home lending are helping push shares higher today. The large increase in its PCL does not seem to be worrying investors much. We think this report generally bodes well for other banks set to report over the next week or so.
Fastenal sprints higher as Q3 highlights outshine persistently subdued manufacturing activity (FAST)
Fastenal (FAST +7%), an industrial products distributor, including fasteners, bolts, nuts, screws, and washers, secures healthy gains today after delivering a modest earnings beat in Q3 on in-line revenue growth. Given FAST's vast reach across the U.S. manufacturing sector, boasting a range of differently sized businesses, its quarterly results are a helpful gauge of broader economic activity.
For much of the year, FAST encountered speedbumps, with sluggish business activity persisting long enough to spur an uptick in layoffs, shift reductions, and extended shutdowns. Last quarter, management was candid in describing the manufacturing economy, stating that industrial production continues to decline, with notable weakness across the non-residential construction and reseller end markets.
- These economic headwinds continued into Q3, illuminated by another period of muted growth. Revenue inched just 3.5% higher yr/yr to $1.91 bln and remained virtually flat sequentially. Earnings improved by a penny compared to Q2 but remained flat versus the year-ago period at $0.52 per share.
- The daily sales rate, or DSR, continued to contract across FAST's fasteners business, compressing by 4.0% yr/yr overall despite lapping an 8.5% decline from 3Q23. The non-residential construction and reseller end markets again proved the culprit, experiencing a 5.5% and 6.4% decline, respectively.
- For the past few quarters, there has been a significant divergence between national accounts, FAST's large customers, and non-national accounts, comprising smaller regional and local customers. In Q3, the DSR in national accounts expanded by +5.6% while non-national accounts compressed by 4.1%. This dichotomy has placed modest pressure on margins, with operating margins sliding by around 65 bps yr/yr. It also illuminates the disproportionate impact of the aforementioned economic headwinds on smaller companies.
- However, like last quarter, there were silver linings. Non-fasteners enjoyed a +4.7% bump in DSR, lifted by strength with warehousing customers. Meanwhile, FAST's critical competitive edge, its Onsite locations, found 93 new customers in Q3, resulting in 302 YTD signings. Exiting the quarter, FAST boasted nearly 2,000 active sites, an 11.7% increase yr/yr. Onsite remains vital to FAST's success as it carves out an economic moat since Onsite customers tend to rely less on competition for parts. This is highlighted by a low single-digit jump in Onsite DSR in Q3.
FAST's Q3 report and subsequent response are similar to last quarter's. Manufacturing activity in the U.S. remains subdued, generating some angst amongst investors. However, against this backdrop, FAST's performance was better than feared, supporting its decent gains today.
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