Market Snapshot
| Dow | 43065.22 | +201.36 | (0.47%) | | Nasdaq | 18502.69 | +159.75 | (0.87%) | | SP 500 | 5859.85 | +44.82 | (0.77%) | | 10-yr Note |
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| | NYSE | Adv 1604 | Dec 1113 | Vol 722 mln | | Nasdaq | Adv 2405 | Dec 1849 | Vol 4.9 bln |
Industry Watch
| Strong: Information Technology, Utilities, Real Estate, Financials, Industrials, Materials, Communication Services |
| | Weak: Energy |
Moving the Market
-- Strength in mega cap stocks supporting broader market
-- China's Ministry of Finance disappointed investors with a lack of details at the press briefing on economic stimulus
-- Low volume at the NYSE
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Closing Summary
14-Oct-24 16:30 ET
Dow +201.36 at 43065.22, Nasdaq +159.75 at 18502.69, S&P +44.82 at 5859.85
[BRIEFING.COM] Today's session featured a broad rally on below-average volume at the NYSE. The S&P 500 (+0.8%) and Dow Jones Industrial Average (+0.5%) extended further into record territory and the Nasdaq Composite (+0.9%) closed about 170 points below its all-time high.
There wasn't a lot of conviction on either side of the tape in the early going. Mega caps and chipmakers were showing strength initially, which drew in buying interest in other stocks. The Invesco S&P 500 Equal Weight ETF (RSP) closed 0.7% higher.
NVIDIA (NVDA 138.07, +3.27, +2.4%) and Apple (AAPL 231.30, +3.75, +1.7%) were among the top performers in the mega cap space, contributing to the gain in the S&P 500 information technology sector (+1.4%). The utilities sector (+1.3%) was the next best performer followed by real estate (+0.7%).
The energy sector (-0.1%) was alone in negative territory at the close, responding to falling commodity prices. WTI crude oil futures settled 2.1% lower at $73.87/bbl and natural gas futures fell $2.49/mmbtu. Oil prices were pressured by demand concerns after China's Ministry of Finance underwhelmed with a lack of details at the press briefing on economic stimulus.
The Treasury market was closed for Columbus Day and there was no US economic data of note today.
Fed Governor Waller says monetary policy should proceed with caution
14-Oct-24 15:35 ET
Dow +203.56 at 43067.42, Nasdaq +177.63 at 18520.57, S&P +48.23 at 5863.26
[BRIEFING.COM] The stock market remains near session highs ahead of the close.
Earlier, Fed Governor Waller said "monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting."
Separately, Tuesday's economic calendar features the October NY Fed Empire State Manufacturing index at 8:30 ET.
DJIA trades up 200 despite loss in BA
14-Oct-24 15:05 ET
Dow +221.33 at 43085.19, Nasdaq +172.15 at 18515.09, S&P +47.20 at 5862.23
[BRIEFING.COM] The Dow Jones Industrial Average (+0.5%) trades up more than 200 points.
Boeing (BA 149.00, -2.02, -1.3%) still acts as a limiting factor for the DJIA after reaching a new 52-week low today.
The largest component in the price-weighted DJIA -- UnitedHealth (UNH 607.36, +9.35, +1.6%) -- reports earnings in front of Tuesday's open. Other names reporting results include Walgreens Boots Alliance (WBA 9.04, -0.17, -1.9%), Johnson & Johnson (JNJ 161.83, +0.37, +0.2%), and Bank of America (BAC 41.98, +0.04, +0.1%).
Vistra Corp., Amentum Holdings ride analyst notes to top of S&P 500
14-Oct-24 14:30 ET
Dow +204.94 at 43068.80, Nasdaq +161.54 at 18504.48, S&P +44.94 at 5859.97
[BRIEFING.COM] The S&P 500 (+0.77%) is in second place on Monday afternoon.
Elsewhere, S&P 500 constituents Vistra Corp. (VST 131.84, +6.55, +5.23%), Amentum Holdings (AMTM 28.02, +1.12, +4.16%), and Applied Materials (AMAT 213.21, +8.15, +3.97%) dot the top of the standings. VST is higher after Exane BNP Paribas started coverage on the stock at Outperform, tgt $231, while a Truist initiation on AMTM drives those shares higher.
Meanwhile, CrowdStrike (CRWD 310.20, -10.01, -3.13%) is underperforming, giving back a portion of its +14.2% month-to-date rally.
Gold lower to begin the week
14-Oct-24 14:00 ET
Dow +150.31 at 43014.17, Nasdaq +157.35 at 18500.29, S&P +40.66 at 5855.69
[BRIEFING.COM] The Nasdaq Composite (+0.86%) is in first place with about two hours to go on Monday.
Gold futures settled $10.70 lower (-0.4%) to $2,676.30/oz, as China’s stimulus fails to impress, strength in dollar halts gains.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $103.25.
Sirius XM establishes a stronger connection today following Warren Buffett's increased stake (SIRI)
Sirius XM (SIRI +8%) found a stronger connection today with Berkshire Hathaway's (BRK.A / BRK.B) Warren Buffet, who purchased around $86.7 mln worth of the satellite radio and audio streaming company, adding to his existing stake. Mr. Buffett affirmed his 31.01% passive stake last month. The disclosed purchase has investors amped today, pushing the stock toward levels not seen since immediately following the completed split-off from Liberty Media (LSXMA) last month. At the time, SIRI announced that it would continue its recurring dividend and $1.166 bln repurchase program. SIRI also reiterated its FY24 revenue guidance of $8.75 bln.
While SIRI still trades near decade lows, a vote of confidence from Warren Buffet is an encouraging development. There are additional reasons why investors could change their tune surrounding SIRI.
- The separation from LSXMA cuts SIRI free. This provides several benefits, including equity, enhancing the float, and potentially improving trading dynamics. The split-off also allows for possible index inclusion down the road. Furthermore, without LSXMA, SIRI's structure becomes more simplistic, allowing it to focus on growth drivers, which it anticipates will result in greater free cash flow that it can reinvest into the business while continuing its dividend and paying down debt.
- In a world of connected smart devices supplying users with various music and audio streaming options, SIRI, which also owns Pandora, has found itself in a crowded market. However, its primary strength is its partnerships with numerous auto OEMs. Many vehicle purchases include complimentary Sirius XM for a specific period. However, once the free trial ends, only around a third of listeners continue their subscription. Furthermore, among those who do, they eventually leave after 4-5 years, evidenced by churn holding steady around 1.5% as of Q2.
- SIRI is looking to change this trend, recently launching a free access plan and an ad-supported plan for the car. SIRI only has these options in a few OEMs, translating to relatively tiny volumes. However, as SIRI rolls out 360L, a significantly enhanced version of its streaming service, giving customers access to 10,000 channels to additional vehicles, it anticipates building these volumes. Management referenced its ad-supported offering as one of the last terrains for addressable advertising in the car.
Warren Buffett's additional stake in SIRI has rekindled interest in the stock. Many roadblocks could create intense headwinds for SIRI, most of which stem from heightened competition. However, SIRI's established presence in automobiles, the improving monetization of Pandora as SIRI garners more advertisers to the platform, and the ongoing rollout of 360L makes the stock worth keeping on the radar as a compelling turnaround play.
Boeing heads lower following job cuts and 777X delay; new CEO making big changes quickly (BA)
Boeing (BA -2%) is trading lower after announcing late Friday that it would reduce its workforce by 10%, or 17,000 jobs. The aerospace giant also delayed its timeline for the first 777X deliveries. It also guided to Q3 revenue of approximately $17.8 bln, which is below analyst expectations. Recall that the Boeing just named Robert "Kelly" Ortberg as its new CEO. He took the helm on August 8 and is getting right into it.
- On the 777X program delay, Boeing cited challenges it has faced in development as well as from the flight test pause and ongoing work stoppage. The company now expects first delivery of the 777-9 in 2026 and the 777-8 freighter in 2028, resulting in a $2.6 bln pre-tax earnings charge. This new schedule reflects BA's updated assessment of its certification timelines to address delays in flight testing as well as anticipated delays associated with the IAM (machinist union) work stoppage.
- In addition, its Commercial Airplanes segment also plans to conclude production of the 767 freighter and recognize a $400 mln pre-tax charge, which also reflects impacts from the IAM work stoppage. BA plans to build and deliver the remaining 767 Freighters ordered by customers and then conclude production of the commercial program in 2027. Production for the KC-46A Tanker will continue.
- The problems are not only on the commercial side, Boeing also concedes that its Defense segment needs to improve. Specifically, its performance on fixed-price development programs is simply not where it needs to be. Boeing expects substantial new losses in its Defense segment in Q3, driven by the work stoppage on commercial derivatives, continued program challenges and its decision to complete production on the 767 freighter.
- Boeing's CEO conceded that its business is in a difficult position and that it's hard to overstate the challenges it faces. He said that these are tough decisions and BA will have to make structural changes to stay competitive. Also, Boeing needs to focus on core areas, rather than spreading itself across too many efforts that can often result in underperformance and underinvestment.
It has been a rough few years for Boeing given all its well-documented safety issues and production delays. The silver lining is that a lot of investors wanted the new CEO to shake things up and these are some pretty significant moved being made. When Boeing hired Ortberg, a key selling point was that he was deeply respected in the aerospace industry, with a reputation for running complex engineering and manufacturing companies. For now, we give him the benefit of the doubt. Hopefully, he will be the one to turn finally things around. Also, we suspect these job cuts might push its union to end the work stoppage and agree to a deal.
Bausch + Lomb sees solid gains today following reports of a joint takeover bid (BLCO)
Global contact lens supplier Bausch + Lomb (BLCO +7%) is seeing significant gains today after FT.com reported that private equity firms TPG and Blackstone (BX) are mulling a joint bid for the company. This is not the first time news broke that BLCO had interested buyers. A month ago, FT.com wrote that BLCO was exploring a sale due to lender concerns over its separation from parent company Bausch Health (BHC), which carries a massive debt load on its books, around $20 bln. The news stirred up meaningful excitement in shares of BLCO, given the speculation over the sizeable premium buyers would likely have to shell out to ink a takeover deal.
With today's news noting that two firms, TPG and BX, have emerged as the leading buyers following last month's report, BLCO investors are teeming with excitement over the potentially lucrative takeover deal that may be in the works.
- BLCO's enterprise value -- its combined market cap and debt -- stands at $11.45 bln as of Friday's close, making a possible price tag on acquiring the company relatively high. With shares gapping nicely higher today, investors anticipate a juicy premium -- closer to a $12.0 bln offer. However, FT.com commented that sources speculate the price could fetch up to $14.0 bln, a roughly +28% premium to Friday's closing price.
- The premium would be well-warranted. Since BHC spun off its eye care division last year, BLCO has delivered improving quarterly results, recently registering its third straight quarter of at least +17% revenue growth on top of sustained profitability. The company's roadmap anticipates further growth. BLCO is entering Phase 2 of its growth strategy, focusing on new product launches, which it expects will spark a flurry of activity during 2H24 and into 2025.
- Regarding product launches, BLCO received uplifting news today as the FDA approved the company's enVista Envy full range of vision intraocular lenses. The FDA's approval followed Health Canada's approval in May. The approval represents a meaningful step toward bolstering BLCO's presence in the high-margin premium intraocular lens space.
While nothing has been confirmed, the likelihood of a takeover appears high, given the financial worries surrounding BHC, which owns just under 90% of BLCO. BHC is also amid legal challenges with Teva Pharma (TEVA) over the patent behind its lead drug, Xifaxan. Additionally, BHC has around $9.0 bln worth of maturities due around the same time the company loses exclusivity on Xifaxan on January 1, 2028. This development is stoking solvency worries among investors, making it critical that BHC raise cash to continue funding its pipeline. Reaching a deal for BLCO would be an excellent start.
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.
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