Market Snapshot
| Dow | 43910.98 | -382.15 | (-0.86%) | | Nasdaq | 19281.40 | -17.36 | (-0.09%) | | SP 500 | 5984.00 | -17.36 | (-0.29%) | | 10-yr Note | -32/32 | 4.43 |
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| | NYSE | Adv 549 | Dec 2188 | Vol 979 mln | | Nasdaq | Adv 1316 | Dec 2965 | Vol 7.8 bln |
Industry Watch
| Strong: Communication Services, Consumer Staples, Information Technology |
| | Weak: Materials, Utilities, Real Estate, Consumer Discretionary, Health Care, Industrials |
Moving the Market
-- Some profit-taking activity after huge gains after the election
-- Gains in some mega caps providing some support to major indices
-- Rising Treasury yields after market was closed on Monday
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Closing Summary
12-Nov-24 16:35 ET
Dow -382.15 at 43910.98, Nasdaq -17.36 at 19281.40, S&P -17.36 at 5984.00
[BRIEFING.COM] The stock market took a breather after a solid run since the election results last week. Losses were muted, though, compared to gains since last Tuesday's close. The Russell 2000 fell 1.8% today, which leaves the index up 5.8% since the election.
Downside moves were fueled by profit-taking, along with rising market rates. The 10-yr yield settled 12 basis points higher at 4.43% and the 2-yr yield settled nine basis points higher at 4.34%.
Many stocks moved lower due to broad selling interest. The Invesco S&P 500 Equal Weight ETF (RSP) declined 0.8% and nine S&P 500 sectors registered losses. The consumer discretionary sector (-1.1%) was among the worst performers, clipped by losses in Tesla (TSLA 328.49, -21.51, -6.2%) and Home Depot (HD 403.08, -5.21, -1.3%). TSLA shares fell under consolidation efforts and HD shares responded to earnings news.
Gains in some mega cap names provided some offsetting support to the broader equity market. Microsoft (MSFT 423.03, +5.02, +1.2%) and NVIDIA (NVDA 148.29, +3.03, +2.1%) were standouts in that respect.
The New York Fed released its Survey of Consumer Expectations for October was released this morning, but received a muted response from equities. It showed that year-ahead inflation expectations dipped to 2.9% from 3.0% while the three-year outlook decreased to 2.5% from 2.7%, and the five-year expectations dipped to 2.8% from 2.9%.
Today's economic data was limited to the NFIB Small Business Optimism survey, which rose to 93.7 in October from 91.5 in September. Wednesday's calendar features the October Consumer Price Index and core-Consumer Price Index at 8:30 ET.
- Nasdaq Composite: +28.5%
- S&P 500: +25.5%
- S&P Midcap 400: +18.4%
- Russell 2000: +18.0%
- Dow Jones Industrial Average: +16.5%
Treasuries settle with sharp losses
12-Nov-24 15:40 ET
Dow -315.60 at 43977.53, Nasdaq -12.18 at 19286.58, S&P -11.35 at 5990.01
[BRIEFING.COM] There hasn't been much up or down movement over the last half hour.
The 10-yr yield settled 12 basis points higher at 4.43% and the 2-yr yield settled nine basis points higher at 4.34%.
Looking ahead, market participants receive the following economic data on Wednesday:
- 7:00 ET: Weekly MBA Mortgage Index (prior -10.8%)
- 8:30 ET: October CPI (Briefing.com consensus 0.2%; prior 0.2%) and Core CPI (Briefing.com consensus 0.3%; prior 0.3%)
- 10:30 ET: Weekly crude oil inventories (prior +2.15 mln)
- 14:00 ET: October Treasury Budget (prior $64.0 bln)
Stocks settle into sideways flow
12-Nov-24 15:10 ET
Dow -261.76 at 44031.37, Nasdaq -3.18 at 19295.58, S&P -5.91 at 5995.45
[BRIEFING.COM] The stock market moved mostly sideways in recent trading. The Nasdaq Composite briefly tipped above its prior close, up about ten points.
Small cap stocks continue to underperform, leading the Russell 2000 to trade 1.5% lower.
Separately, Suncor Energy (SU), Occidental Petro (OXY), Spotify (SPOT), Topgolf Callaway Brands (MODG), Instacart (CART), and others report earnings after the close.
Mega caps contribute to index improvement
12-Nov-24 14:35 ET
Dow -249.16 at 44043.97, Nasdaq +7.46 at 19306.22, S&P -4.57 at 5996.79
[BRIEFING.COM] The market moved higher over the last half hour, but major indices remain under pressure.
The relative improvement coincided with mega cap names moving up. The Vanguard Mega Cap Growth ETF (MKG) sports a 0.2% gain.
The S&P 500 communication services (+0.6%) and information technology sector (+0.5%) lead the 11 sectors, reflecting leadership in their mega cap components.
Buy-the-dip action
12-Nov-24 13:55 ET
Dow -222.52 at 44070.61, Nasdaq -23.60 at 19275.16, S&P -14.78 at 5986.58
[BRIEFING.COM] The indices have made a nice move off their lows for the day, which were established near the end of the New York lunch hour. The question is, can this buy-the-dip effort get some legs under it, like most buy-the-dip efforts all year have, or will the indices revert to a negative leaning?
The mega-cap stocks will likely have some say in providing the answer and perhaps Treasury yields will as well. The latter have stopped rising, yet they haven't exactly fallen in any significant way.
The 2-yr note yield is up nine basis points to 4.34% and the 10-yr note yield is up 12 basis points to 4.43%. Their highs for the session are 4.37% and 4.44%, respectively.
The behavior of Treasury yields is certain to be a guidepost for stocks on Wednesday, as markets will be responding to the release of the October Consumer Price Index at 8:30 a.m. ET. The Briefing.com consensus calls for a 0.2% month-over-month increase (and 2.6% yr/yr) in total CPI and a 0.3% month-over-month increase in core-CPI (and 3.3% yr/yr).
Shopify soars as eCommerce platform provider continues to defy macroeconomic headwinds (SHOP)
Shopify (SHOP), a provider of an eCommerce platform for entrepreneurs, SMBs, and corporations, has been on a role, defying the macroeconomic headwinds and that momentum only gained steam in Q3. On the heels of a strong Q2 earnings report in which SHOP beat top and bottom-line expectations on Gross Merchandise Volume (GMV) growth of 22%, expectations were high ahead of this morning's print, as reflected in the stock's 15% surge since the end of October. The high hurdle proved to be no match for SHOP, though, as the company exceeded revenue expectations, generated even stronger GMV growth of 24%, and issued upside revenue guidance for Q4.
- That Q4 revenue outlook, which calls for mid-to-high twenty percent growth, represents a further acceleration in top-line growth at the high end of the range, indicating that SHOP is anticipating a robust holiday shopping season for its platform. In Q3, revenue jumped by 26% yr/yr, driven by GMV strength, especially in SHOP's international markets such as Germany and France, where the company is growing its market share.
- Given the sluggish consumer spending trends, it may seem quite surprising that SHOP is achieving these impressive results. There are a few key factors that are enabling SHOP to generate such strong growth despite the macro-related pressures, including an ongoing trend towards entrepreneurism and the company's increasing share in that market.
- Additionally, while SHOP is mostly known for catering to sole proprietors and SMBs, it continues to gain traction with larger enterprises. For example, in Q3, SHOP signed Reebok, Hanes Brands (HBI), Vera Bradley (VRA), and Lionsgate Entertainment (LGF.A) as new customers.
- Investing in AI and launching new tools that help streamline time-consuming tasks for business owners is providing SHOP with competitive advantages and generating strong merchant growth. Shopify Flow, which allows merchants to easily create custom automations to help them run their businesses more efficiently, and Shopify Tax, are two merchant automation tool that are seeing strong adoption. The company also recently launched Sidekick, an AI-powered adviser for merchants that generates new backgrounds and product descriptions.
- Lastly, Shopify Payments, which allows merchants to accept payments without a third-party payments provider, continues to experience healthy growth. In Q3, Shopify Payments penetration increased to 62% and facilitated $17.0 bln in GMV, representing 42% growth.
The main takeaway is that SHOP is continuing to buck the macro-related headwinds as its eCommerce platform becomes the go-to destination not only for entrepreneurs and SMBS, but also increasingly for larger enterprises. With this strengthening momentum behind it, SHOP is poised for a very strong holiday shopping season.
Sea Limited pops after accelerating revenue growth in Q3 while still improving profitability (SE)
Asian Pacific e-commerce, fintech, and video game giant Sea Limited (SE +12%) continues to ride a massive wave of buying today, climbing to its best levels since early 2022 following a long-awaited return to delivering adjusted earnings upside in Q3. SE shifted away from profits over growth last year, much to shareholder dismay, mainly since the shift came shortly after the company announced it would focus on profitability over growth at all costs. The back and forth led to significant selling pressure last year, sinking shares of SE by as much as 90% from all-time highs reached in 2021.
However, SE's move back toward growth while still targeting efficiency gains proved to be the correct course of action. The stock has enjoyed a resurgence in 2024, nearly tripling YTD following today's move. Investors continue giving SE a standing ovation as the company accelerates growth while registering meaningful profitability improvements.
- During Q3, Shopee -- SE's e-commerce arm, its largest business -- stayed on track to reach the company's projected FY24 gross merchandise volume (GMV) growth in the mid-20s percentage, registering a 25.2% increase to $25.1 bln. Orders expanded by a similar margin, propelling revs 42.6% higher yr/yr to $3.2 bln. SeaMoney, housed in SE's Digital Financial Services segment, enjoyed a 38% leap in revenue to $615 mln. Likewise, Garena, SE's Digital Entertainment division, posted bookings growth of 24.3%, fueling the company's raised FY24 forecast of +30%.
- As a result, SE posted 30.8% consolidated revenue growth in Q3 to $4.33 bln, an uptick from the +23.0% recorded last quarter and +22.8% in Q1.
- Impressively, profitability was not squeezed to attain these growth figures. Shopee achieved a positive adjusted EBITDA of $34.4 mln, a stark reversal from the $(346.5) mln posted in the year-ago period. Similarly, adjusted EBITDA shot higher across SeaMoney and Garena, expanding by 13.4% and 34.4% yr/yr, respectively.
- These figures supported SE's second consecutive quarter of non-GAAP profitability, ending with EPS of $0.24, slightly ahead of consensus.
- Looking ahead, SE eyes many growth opportunities. Shopee is benefiting significantly from live streaming, with daily live-streaming buyers up 15% sequentially in Q3. This feature has provided considerable fuel for Chinese-based e-commerce giant PDD Holdings (PDD). SE is deploying the tactic across its markets, from Indonesia to Thailand and Vietnam.
- Meanwhile, Garena's most popular Free Fire game remains one of the largest mobile games globally, boasting over 100 mln daily active users during Q3, 25% higher than last year. There remains ample room for growth as it begins expanding in North Africa, a largely unpenetrated region. Within Digital Financial Services, SE is extracting massive gains from credit lending, which remains underserved in its markets.
SE's exceptional combination of accelerating revenue growth and improving profitability is keeping buyers in control today. While shares are roughly 70% lower than record 2021 highs, SE continues to take the proper steps to cement its position within its several Asian Pacific markets, positioning it for further upside over the long term.
On was a bit off on EPS, but this Briefing.com Investment idea has performed well in 2024 (ONON)
On Holding (ONON) is trading flat after reporting an EPS miss with its Q3 report this morning. However, the Switzerland-based athletic footwear company was able to report strong upside revenue. Revenue rose 32.3% yr/yr to an all-time record CHF635.8 mln, which was a good bit better than expected. Importantly, Briefing.com named ONON as one of our 2024 Investment ideas in December 2023 at $27.86 and it has been a big winner (+80%) for us.
- The strong top line growth in Q3 was fueled by significant acceleration in On's direct-to-consumer (DTC) channel, which includes online and company-owned stores. DTC channel sales jumped 49.8% yr/yr (+50.7% CC) to CHF 246.7 mln. This represented 38.8% of total sales vs 34.3% a year ago. ONON cites continued exceptional momentum for the On brand, driven by significant increases in global brand awareness.
- Sales through its wholesale channel still make up the majority of sales and this channel performed pretty well. Wholesale channel sales increased by 23.2% yr/yr (+24.0% CC) to CHF 389.1 mln. ONON has expanded its wholesale footprint in a very controlled way. The vast majority of growth is driven by the strength of existing and new product franchises and ONON's ability to convert more shelf space with its expanded offerings in running and in its new categories.
- In terms of boosting global brand awareness, ONON said its presence at the 2024 Olympics helped. Stories have been amplified through traditional and social media. Also, partnerships with Zenadaya or SK clicks are reaching younger demographics, bringing in a new group of fans. ONON sees this reflected in its quarterly proprietary brand survey. In the US, awareness of the On brand has doubled since last year, now reaching close to 20%. In Paris, brand awareness almost tripled yr/yr.
- Innovation is also playing a role in ONON's success. The company describes its LightSpray technology as "groundbreaking" as it continues to turn heads. A robot fuses 1.5km of filament in a complex pattern onto a high-performance racing midsole, forming the complete shoe upper in a single, three-minute step with no glues and no seams, reducing waste and emissions. It's one of the lightest sneakers ever at a mere six ounces.
- During marathon week in NYC, thousands of people stopped by its On Labs pop up in Soho to see the spraying process in action. ONON is also excited about its all new Cloudsurfer next and the Cloudrunner 2, which are proving to have immediate blockbuster potential.
- ONON says it is heading into the holiday season with a lot of confidence to fulfill strong consumer demand for the brand in Q4. Due to the strong Q3 upside, ONON is raising its FY24 sales growth outlook to at least 32% CC. This embeds the expectation for an acceleration in constant currency sales growth rate in Q4, as well as an anticipated sizable FX headwind when converted to Swiss Francs in Q4.
Overall, we see this as a solid quarter for ONON, but investors are a bit letdown by the EPS miss. However, there were still some good things here. DTC sales really stood out with its sales growth rate more than doubling wholesale. The Olympics and its Zendaya campaign have really sparked brand awareness. ONON also is excited about its LightSpray technology and its Cloud line. Briefing.com is proud we named this one as a 2024 Investment idea. It reminded us of an early-stage Deckers (DECK), which has been given a jolt from its Hoka brand. 2024 has a been a good year for ONON's stock price.
Home Depot's comps receive some repair work, but shares seem to have priced in improvement (HD)
As we enter the later part of the September quarter earnings season, a flurry of results from the retail sector will ensue with Home Depot (HD) kicking things off this morning. The leading home improvement retailer set a positive tone by delivering a beat-and-raise Q3 earnings report that featured an upswing in comparable sales. Following a lull in demand after the pandemic, sales of seasonal and outdoor products, such as grills, experienced a strong rebound in Q3. However, persistently high interest rates and macroeconomic uncertainties are still negatively impacting parts of HD's business.
- Although comparable sales decreased for the eighth consecutive quarter, comps did improve meaningfully in Q3, coming in at (1.3)% compared to (3.3)% in Q2. Customer transactions nearly flipped to positive territory at (0.2)%, while average ticket was (0.8)%. The better-than-expected performance enabled HD to raise its FY25 comp guidance to approximately (2.5)% from its prior forecast of (3.0)-(4.0)%.
- Along with the resurgence in grills, the Pro business continued to shine, although the scope and costs of those Pro projects have diminished under the weight of higher financing costs. Even after the Fed's interest rate cuts, mortgage rates are still above the 6% level, which is keeping a lid on the housing market. As a result, home repair projects that are typically done to prepare a house to be sold, or are done after new homeowners move in, are not as prevalent as they normally would be.
- The good news is, there is plenty of pent-up demand for larger scale projects, such as kitchen or bathroom remodels, so consumers will eventually pull the trigger on those projects. A significant drop in interest rates would accelerate that unwinding of pent-up demand.
- We believe that the stock is already mostly reflecting those expectations for stronger demand, driven by a lower interest rate environment. Despite HD's lackluster sales growth over the past several quarters, shares are up by about nearly 40% on a yr/yr basis. Likewise, HD's beat-and-raise earnings report is failing to provide a lift today because the market has already anticipated an improvement in demand.
Overall, HD turned in a solid earnings report, which bodes well for rival Lowe's (LOW) when it reports Q3 earnings one week from today. Still, HD's business isn't firing on all cylinders and Hurricane Milton and Hurricane Helene provided it with a sales bump this quarter. Unless the stubbornly higher interest rates begin to ease materially, it seems likely that HD's sales and comp growth will struggle to gain much traction.
Tyson Foods caps off FY24 on a high note; anticipates sustained profitability in FY25 (TSN)
Tyson Foods (TSN +9%) breaks out today after flying past analyst earnings estimates on decent top-line upside in Q4 (Sep). The prominent chicken, beef, and pork processor still projected FY25 revenue growth below analyst expectations, seeing flat to a 1% dip yr/yr, reflecting little material changes in consumer behavior combined with sliding pork prices and uncertainty surrounding cattle herds.
Nevertheless, after such a chaotic year filled with multiple plant shutdowns and significant layoffs, investors are encouraged by TSN's improving volumes and profitability in Q4. The market is also expressing optimism over TSN's adjusted operating income projections for FY25, signaling sustained profitability despite relatively soft revenue growth.
- TSN topped earnings by double-digits for the fourth straight quarter in Q4, expanding its bottom line by nearly 150% yr/yr to $0.92. Adjusted operating income of $512 mln, representing margins of 3.8%, was TSN's best quarterly performance all year, both more than doubling from the year-ago period. Management has aggressively targeted operational efficiencies, closing four chicken processing plants and announcing meaningful workforce reductions during 1H24, helping TSN overcome inflationary costs and an unfavorable product mix.
- Revenue did not grow as substantially as earnings, crawling just 1.6% higher yr/yr, the same as last quarter, to $13.56 bln. TSN's largest Beef business led all segments in the quarter, posting 4.6% sales growth on a 3.7% lift in volumes even though prices edged nearly 1% higher yr/yr. Chicken also grew, recording a 2.3% improvement, primarily fueled by rising prices as volumes turned 0.7% lower. Pork revenue slid by 3.7%, dragged down by a nearly 7% price drop. Prepared Foods saw virtually flat revenue growth due to a 1.4% volume decline.
- On a consolidated basis, volumes inched 0.5% higher, carrying upward momentum from last quarter's +1.1% bump. Supporting TSN's steadily improving volumes compared to a 0.7% contraction during the first half of the year has been a gradual shift among consumers to cook at home. Away-from-home food prices have been rising quicker than at-home prices this year, nudging households away from dining out as frequently.
- Looking ahead, while market mechanics related to cattle supply, as there are no clear signs of sustained herd rebuilding intentions, and pork prices remain dynamic, TSN anticipates similar profitability across the board in FY25. The company anticipates adjusted operating loss to persist for Beef, while targeting adjusted operating income of $0.1-0.2 bln for Pork and $1.0-1.2 bln for Chicken, mirroring the figures from FY24.
TSN capped off a challenging year on a high note, providing much-needed momentum heading into FY25. With TSN's FY25 guidance potentially too conservative due to the several clouds hanging in the distance, the company could end up raising its targets for the year if inflationary pressures continue to ease. As consumers gravitate toward cooking more at home, a more fortified base may be forming, providing TSN a higher jumping-off point for long-term growth.
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