Market Snapshot
| Dow | 42514.95 | -409.94 | (-0.96%) | | Nasdaq | 18276.65 | -296.47 | (-1.60%) | | SP 500 | 5797.42 | -53.78 | (-0.92%) | | 10-yr Note |
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| | NYSE | Adv 722 | Dec 2047 | Vol 823 mln | | Nasdaq | Adv 1161 | Dec 3046 | Vol 6.27 bln |
Industry Watch
| Strong: Utilities, Real Estate |
| | Weak: Information Technology, Consumer Discretionary, Communication Services |
Moving the Market
--Rising Treasury yields
--Consolidation activity after extended winning streak
--Weakness in mega-cap stocks
| Stock Market Summary
23-Oct-24 16:20 ET
Dow -409.94 at 42514.95, Nasdaq -296.47 at 18276.65, S&P -53.78 at 5797.42
[BRIEFING.COM] The stock market labored today under the weight of losses in its biggest stocks and ongoing angst about rising Treasury yields.
The 2-yr note yield went as high as 4.09% and the 10-yr note yield went as high as 4.255% with further selling pressure and a disappointing 20-yr bond reopening adding to this week's losses. Those securities settled the cash session at 4.09% and 4.24%, respectively, which helped keep a lid on buy-the-dip interest in the stock market.
Stocks managed to close off their worst levels of the day, which had the Dow Jones Industrial Average down more than 500 points, yet they suffered from a lack of influential leadership and a general lack of interest from buyers that also permeated the commodities market, particularly oil and precious metals.
The weakest links were the consumer discretionary (-1.8%), information technology (-1.7%), and communication services (-1.4%) sectors, all of which house mega-cap components. The Vanguard Mega-Cap Growth ETF (MGK) was down 1.6%.
Tesla (TSLA 213.65, -4.32, -2.0%), which reports after the close today, joined with Amazon.com (AMZN 184.71, -4.99, -2.6%) to keep the consumer discretionary sector under wraps. McDonald's (MCD 298.46, -16.23, -5.2%), which was dealing with reports of an E. coli outbreak, added to the sector's struggles.
Apple (AAPL 230.76, -5.10, -2.2%) got clipped on iPhone 16 demand concerns and joined with NVIDIA (NVDA 139.56, -4.03, -2.8%) to undercut the information technology sector. Other stragglers were Enphase Energy (ENPH 78.47, -13.76, -14.9%) and Seagate Technology (STX 103.52, -9.12, -8.1%), which faced selling pressure after their earnings reports.
Meta Platforms (META 563.69, -18.32, -3.2%) and Alphabet (GOOG 164.48, -2.34, -1.4%), which report their results next week, were the main drivers behind the underperformance of the communication services sector, which had the benefit of a positive response to AT&T (T 22.50, +1.00, +4.6%) following its earnings report.
There were only two sectors -- real estate (+1.0%) and utilities (+1.0%) -- that gained ground on Wednesday. They did so in more of a defensive-oriented trade that also showed up in the 6.7% gain in the CBOE Volatility Index to 19.41.
Losses for the other six sectors ranged from 0.1% to 0.5%. The industrials sector (-0.3%) was in that grouping, pressured by the loss in Boeing (BA 157.06, -2.82, -1.8%) after its earnings report and sobering view from the new CEO that it will take time to return the company to its former legacy.
Breadth figures underscored today's negative disposition. Decliners led advancers by a nearly 3-to-1 margin at the NYSE and Nasdaq.
- Nasdaq Composite: +21.8% YTD
- S&P 500: +21.5% YTD
- Dow Jones Industrial Average: +12.9% YTD
- S&P Midcap 400: +12.3% YTD
- Russell 2000: +9.2% YTD
Reviewing today's economic data:
- Existing home sales decreased 1.0% month-over-month in September to a seasonally adjusted annual rate of 3.84 million (Briefing.com consensus 3.90 million) from an upwardly revised 3.88 million (from 3.86 million) in August. Sales were down 3.5% from the same period a year ago.
- The key takeaway from the report is that more inventory is becoming available, yet it is still a tight market, evidenced by the ongoing increase in the median home price and a very low mortgage delinquency rate.
- MBA Mortgage Applications Index -6.7% wk/wk with refinance applications -8% and purchase applications -5%
Thursday's economic calendar features:
- 08:30 ET: Weekly Initial and Continuing Jobless Claims
- 09:45 ET: Preliminary October S&P Global U.S. Manufacturing and Services PMIs
- 10:00 ET: September New Home Sales
Pinned down by heavyweights
23-Oct-24 15:25 ET
Dow -445.49 at 42479.40, Nasdaq -331.31 at 18241.81, S&P -62.58 at 5788.62
[BRIEFING.COM] The indices are still pinned well below the unchanged line, feeling the weight of declines in many of their most heavily-weighted stocks.
One of those heavyweights is Tesla (TSLA 213.43, -4.54, -2.1%), which will report its quarterly results after the close along with IBM (IBM 232.87, +0.62, +0.3%), Lam Research (LRCX 72.65, -0.35, -0.5%), and a host of other companies.
Today's selling interest has cut across markets. Treasuries are down and so are most commodities. Oil, gasoline, gold, silver, and copper futures all settled the session lower.
Thursday's economic lineup includes the weekly Initial and Continuing Jobless Claims Report, the preliminary October S&P Global U.S. Manufacturing and Services PMIs, and the September New Home Sales Report.
Volatility Index picks up
23-Oct-24 15:00 ET
Dow -430.36 at 42494.53, Nasdaq -337.73 at 18235.39, S&P -63.16 at 5788.04
[BRIEFING.COM] The 10-yr note yield made a second pass at clearing 4.25% on an upside swing following the disappointing 20-yr bond reopening at 1:00 p.m. ET, but for the second time it was met with resistance. The 10-yr note yield currently sits at 4.24%.
Stocks, meanwhile, fell to new session lows on that renewed run to 4.25%, yet they have found some rebound interest of late that has helped cut into today's losses that had the Dow Jones industrial Average down more than 500 points.
Strikingly, the real estate (+1.0%) and utilities (+0.7%) sectors continue to be winning standouts in more of a defensive-minded trade that is resonating with the 8.3% increase in the CBOE Volatility index to 19.72.
The jump in rates has fostered some consolidation activity that it cutting across most corners of the market. Leading laggards today include the mega-cap stocks and the small-cap stocks. The Vanguard Mega-Cap growth ETF (MGK) is down 1.8% and the Russell 2000 is down 1.2%.
Beige Book shows U.S. economic activity little changed, employment increased "slightly"
23-Oct-24 14:30 ET
Dow -573.30 at 42351.59, Nasdaq -396.95 at 18176.17, S&P -80.43 at 5770.77
[BRIEFING.COM] The broader market continued its downward trajectory the Fed's October Beige Book, released at the bottom of the hour; the report showed economic activity was little changed in nearly all Districts since early September, though two Districts reported modest growth. Most Districts reported declining manufacturing activity. Currently, the S&P 500 (-1.37%) is in second place, locked in a close race with the DJIA (-1.34%).
- Among other notable points from the report, employment increased slightly during this reporting period, with more than half of the Districts reporting slight or modest growth and the remaining Districts reporting little or no change.
- Contacts noted that it remained difficult to find workers with certain skills or in some industries, such as technology, manufacturing, and construction.
- Inflation continued to moderate with selling prices reportedly increasing at a slight or modest pace in most Districts. Still, the prices of some food products, such as eggs and dairy, were reported to have increased more sharply.
- Despite elevated uncertainty, contacts were somewhat more optimistic about the longer-term outlook.
Currently, the yield on the benchmark 10-yr treasury note is up almost three basis points to 4.243%.
Gold kept in check by familiar foe
23-Oct-24 13:55 ET
Dow -495.93 at 42428.96, Nasdaq -380.29 at 18192.83, S&P -73.11 at 5778.09
[BRIEFING.COM] The Nasdaq Composite (-2.05%) is today's worst-performing average, at session lows now down about 380 points; the Fed's October Beige Book is due out at the top of the hour.
Gold futures settled $30.40 lower (-1.1%) to $2,729.40/oz, the yellow metal's recent rally put on pause amid higher yields and a stronger greenback.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $104.54.
Starbucks' sleepy sales trends take turn for the worse in Q4, possibly marking a bottom (SBUX)
When Starbucks (SBUX) reported Q3 results in late July, there was some hope that sales trends were beginning to stabilize and that the coffee chain's turnaround plan was starting to take hold as Q3 global comparable store sales improved to -3% from -4% in Q2. Unfortunately, the modest comp improvement was just a mirage as sales trends deteriorated further in Q4, indicating that its expanded range of new menu offerings and increased in-app promotional activity have fizzled out.
- SBUX's Q4 EPS, revenue, and comp guidance fell flat, badly missing expectations and illustrating how tall of a task new CEO Brian Niccol has in front of him. That challenge isn't limited to just one key market, either, as U.S. comps declined by 6% compared to last quarter's 2% drop, while China comparable store sales sank by 14%, matching the decrease in Q2.
- Mr. Niccol, who previously served as CEO of Chipotle Mexican Grill (CMG), officially took the helm of SBUX on September 9, 2024, replacing Laxman Narasimham. Given Niccol's impressive track record at CMG -- revenue doubled, and profits increased nearly sevenfold under his six-year tenure -- there's a hope and expectation that he can repeat that success at SBUX. One major challenge he's facing is to reconnect with the lower-frequency customer who has cut pricier SBUX coffee out of their budgets.
- That will be easier said than done, but he's confident that his experience in building brands -- and, in this case, rebuilding brands -- will help right the ship as SBUX shifts its marketing strategy to focus on all customers, rather than just Rewards customers. Better store execution during the morning rush, such as ensuring all drinks and food are on time, improving digital capabilities, and elevating the in-store experience to differentiate between to-go and for-here service are other pillars of his U.S. turnaround plan.
- In China, the challenge is two-fold. First, SBUX is contending with an increasingly competitive market that's being flooded with new coffee shops and pick-up kiosks, leading to intense price pressures. Second, macroeconomic headwinds have put a strain on discretionary spending trends, similar to the U.S. While fixing the U.S. market is Niccol's first priority, China is SBUX's second largest market, and under Mr. Narasimham's leadership, the company had plans to expand its store count to 9,000 units by 2025.
- There's less clarity around the turnaround plan for China, but it wouldn't be surprising if SBUX scales back on its aggressive expansion plans, at least until the U.S. market is in much better shape. The timeframe for this turnaround is also uncertain, but it could be several quarters before SBUX's financials begin to reflect meaningful improvements. On that note, the company also suspended its FY25 guidance, essentially giving Mr. Niccol a clean slate to work with heading into next fiscal year.
Despite the very gloomy Q4 outlook, shares of SBUX are displaying some resilience today, presumably because the market is viewing Q4 as a "kitchen sink quarter" that could represent a bottom in this rough period. That could very well be the case and Niccol's track record of success offers reason to believe that better days are indeed ahead, but it certainly won't be an overnight fix.
Texas Instruments climbs on strength in China and further recovery across smaller end market (TXN)
A welcoming surprise surrounding Texas Instruments' (TXN +3%) automotive end market in China during Q3 supports today's lively response, outshining downbeat Q4 earnings and revenue guidance. The chip maker, specializing in analog and embedded processors, derives three-quarters of its annual revs from industrial and automotive end markets, with around a third stemming from purely automotive-related products. The industrial component remained weak, declining sequentially for the sixth consecutive quarter. However, ongoing recoveries in TXN's other end markets, including automotive, personal electronics, enterprise systems, and communication equipment, helped ease the pain of stubbornly frail industrial end market demand.
- TXN's Q3 earnings and sales figures continued to improve sequentially, touting EPS of $1.44 when backing out a $0.03 benefit and revs of $4.15 bln. Notable positive standouts included TXN's more minor end markets -- those aside from industrial and automotive. Personal electronics delivered 30% sequential growth despite relatively sluggish demand across the PC and smartphone landscape. Meanwhile, enterprise systems and communication equipment enjoyed 20% and 25% sequential growth, respectively.
- TXN attributed its outward strength to simple rebounding dynamics. For example, personal electronics is bouncing strongly off a deep trough in 1Q23. Management added that this market is still running around 20% lower than the 2021 peak.
- In automotive, sales ticked around +7-8% higher from Q2. Most of the growth came from China, supported by demand for electric vehicles (EVs). These autos contain far more chip content than traditional ICE vehicles, boosting demand for TXN's automotive products. The surprising piece regarding China was how quickly the region rebounded, experiencing a relatively quick correction over the past few quarters.
- On a side note, the positivity branching from China is a good sign ahead of quarterly reports from TXN's peers with greater exposure to EVs, such as ON Semi (ON) and STMicroelectronics (STM).
- However, China is the sole silver lining related to automotive. The rest of the market is enduring ongoing weakness. Meanwhile, industrial demand cannot seem to break free from its perpetual softness as sales fell by low single digits sequentially in Q3, underpinned by ongoing inventory adjustments.
- Given the weight of industrial and automotive combined, the problems specific to these markets continue to dwarf the upward momentum in TXN's other end markets. This development led to TXN's bearish Q4 guidance, projecting EPS of $1.07-1.29 and revs of $3.7-4.0 bln, both missing analyst targets.
Today's uplifting price action reflects a market encouraged by a speedy automotive-related recovery in China and accelerating rebounding momentum across several of TXN's end markets. While seemingly unyielding headwinds in industrial remain problematic, TXN may already be through the thick of it, commenting that recovery is expected as most sectors have already bottomed or are hovering near a bottom. Given that other components of TXN's business are already amid a strong recovery, investors are growing excited over a long-awaited return to yr/yr growth.
Boeing heads a bit lower on Q3 earnings; new CEO provides details on turnaround efforts (BA)
Boeing (BA -2%) is trading lower following its Q3 report this morning. The aerospace giant had just issued downside guidance on October 11, so there were not a lot of surprises. Also, the focus of this report was not really on the financial results. Boeing is struggling and we think investors were focusing more on comments from new CEO Robert "Kelly" Ortberg, who took the helm on August 8. This was his first earnings call at the helm, so that piqued our interest.
- Boeing reported a loss, as expected, but it was a bit larger than expected. Revenue fell 1.5% yr/yr to $17.84 bln, which was in-line with recent guidance. Commercial Airplanes Q3 segment revenue fell 5% yr/yr to $7.44 bln. The segment was impacted by $3 bln in charges related to the 777X and 767 programs. The IAM work stoppage and higher R&D spend also impacted margins.
- In addition to guidance, Boeing announced on October 11 that it would implement a 10% workforce reduction and it announced a delay for its 777X program. With all that being known, investors were mostly focused on Ortberg's vision for the remainder of 2024 and into 2025. He conceded that trust in the company has been eroded and Boeing is saddled with too much debt. His mission is to turn this big ship in the right direction and restore Boeing to a leadership position.
- He focused on changing the culture and how it starts at the top and works its way down to the factory floor. Also, Boeing needs to stabilize the business. This has been a central focus since Ortberg took over in August. First and foremost, the IAM strike needs to end. However, it will take some time to ramp up as Boeing needs to restart factories and the supply chain, and it's much harder to turn this on than it is to turn it off.
- Looking ahead, Boeing used to provide guidance but that has been on hold for some time. Nevertheless, it did say it expects 2025 will be another year that uses cash. However, Boeing expects a significant improvement in terms of cash usage relative to 2024. Importantly, Boeing expects to exit 2025 with real momentum in the business as it returns to normal production rates. Also, Boeing has worked with supply chain partners to significantly reduce expenditures and the workforce reduction will reduce labor costs. Boeing also has decisively implemented reductions to its discretionary spending across the company.
Overall, the numbers this quarter were not as meaningful as usual given that Boeing had just guided. Also, given its struggles and headwinds (IAM stoppage, 777X delays, workforce reduction, R&D spend), investors were already bracing for a big loss in Q3. Stepping back, we liked what we heard from Ortberg on the call and the direction he wants to take Boeing. It is going to take some time, but it sounds like a turnaround somewhere in the 2026 timeframe seems feasible.
Stride hits its stride with huge SepQ upside, demand in its core business remains robust (LRN)
Stride (LRN +31%) is surging higher today after reporting huge upside with its Q1 (Sep) report last night. EPS jumped to $0.94 from $0.11 in the year ago period, while revenue rose a healthy 14.8% yr/yr to $551.1 mln. Both results blew away analyst expectations. Stride also guided Q2 (Dec) revenue at $560-580 mln, which also was well above expectations.
- Stride provides a wide range of services including K-12 education, career learning, professional skills training etc. LRN said that there is high parent dissatisfaction with their current schools and LRN continues to see students reconsidering the traditional college pathway in favor of a more skills-based education. Stride says it's filling a need in the market for virtual options.
- Demand in its core business remains robust which was evident in the acceleration it is seeing in application volumes. Stride notes that the issues that it can address for families span a wide range from school safety to academics to mental health to mobility to flexibility and everything in between.
- Enrollments are a key metric for Stride, and there was healthy +18.5% growth in SepQ to a record 222.6K, almost 100K more than LRN had prior to the pandemic in FY20. Of the total enrollments, 91.7K were Career Learning enrollments, up 30.4% yr/yr. Families continue to seek out educational opportunities. Also, Stride cited its execution around marketing and operations as helping as well.
- It is not all good news. Stride will be dealing with the expiration of ESSER (Elementary and Secondary School Emergency Relief) grants. They have provided federal pandemic relief funding to enable schools to operate safely during the pandemic, but that funding is ending. Stride sees the loss of ESSER funding as a headwind to revenue and enrollment in FY25. As such, Stride expects revenue per enrollment to finish the year flattish to down slightly.
Overall, this was a great quarter for Stride with big upside results and robust guidance for DecQ. Enrollment growth continues to be robust as parents seek education alternatives. Also, what's nice about Stride is that it also caters to adults with career learning and professional skills training. The ESSER headwind will be something to watch in FY25 and may impact different states at different times, but Stride's results/guidance looks great right now.
Seagate Tech seeing sizable losses as guidance fails to live up to loftier expectations (STX)
Following a rough stretch in 2022 and 2023 in which an inventory glut, combined with sluggish demand for PCs and laptops, caused hard disk drive maker Seagate Technology's (STX) revenue to decline for eight consecutive quarters, the company's fortunes have brightened considerably this year. Bolstered by strengthening demand from cloud customers and a more favorable supply/demand environment across the industry, STX delivered back-to-back top and bottom-line beats as 1Q25 revenue growth surged to over 49% -- its highest growth in more than five years.
However, with shares are already up by 32% on a year-to-date basis, STX was facing a high bar to hurdle ahead of last night's print. Coming off a 4Q24 beat-and-raise performance in which STX guided 1Q25 EPS and revenue well above expectations, the company's inline EPS and revenue guidance for 2Q25 isn't being viewed as good enough, prompting a sell-the-news reaction. Based on STX's bullish commentary during the earnings call, it seems that its more conservative guidance doesn't sync with the company's high expectations for this fiscal year.
- For instance, STX is especially excited about its new HAMR (heat-assisted magnetic recording) storage products that enable HDDs to store far more data, lowering the cost per terabyte, making them ideal for new datacenters that are running AI technologies. The qualification process is ongoing across several global cloud and enterprise customers and STX expects HAMR shipments and revenue to ramp in mid-CY25.
- The company is also anticipating further margin expansion opportunities this fiscal year, driven by the ramp up of its high-capacity nearline drives, the growth of its Mozaic-based HAMR products, and healthy supply/demand dynamics. In Q1, non-GAAP gross margin surged to its highest level in more than a decade to 33.3%, compared to 19.8% in the year-earlier period.
- STX's mass capacity HDDs, especially nearline storage HDDs that are often used for bulk storage purposes in data centers, are seeing strong demand and that trend is expected to continue in FY25. As datacenter infrastructure continues to be built out due to the massive amount of data that's supporting AI, cloud companies like Microsoft (MSFT), Google (GOOG), and Amazon Web Services (AMZN) will need to heavily invest in storage.
The main takeaway is that STX is succumbing to a sell-the-news reaction today as its inline Q2 guidance failed to live up to the market's lofty expectations. Still, the overall outlook remains bullish for STX with data growing faster than the world's ability to store it, to borrow a phrase from the company's website.
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