Market Snapshot
| Dow | 44860.31 | +123.74 | (0.28%) | | Nasdaq | 19174.30 | +119.46 | (0.63%) | | SP 500 | 6021.63 | +34.26 | (0.57%) | | 10-yr Note | -2/32 | 4.30 |
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| | NYSE | Adv 970 | Dec 1740 | Vol 914 mln | | Nasdaq | Adv 1721 | Dec 2515 | Vol 6.4 bln |
Industry Watch
| Strong: Utilities, Communication Services, Information Technology, Consumer Discretionary |
| | Weak: Materials, Energy |
Moving the Market
-- Reacting to President-elect Trump saying he will impose large tariffs on imports from Canada and Mexico, and increase tariffs on China imports
-- Gains in some mega caps boosting S&P 500, Nasdaq Composite
-- AMGN weighing down DJIA following Phase 2 update for weight-loss drug Maritide
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Closing Summary
26-Nov-24 16:30 ET
Dow +123.74 at 44860.31, Nasdaq +119.46 at 19174.30, S&P +34.26 at 6021.63
[BRIEFING.COM] The stock market was mixed at the index level today, though broader market sentiment was negative throughout the session. At the close, decliners outpaced advancers by a 2-to-1 ratio at the NYSE and a 3-to-2 margin at the Nasdaq.
The underlying negative bias stemmed largely from President-elect Trump's announcement that he plans to impose tariffs—an additional 10% on imports from China and 25% on goods from Mexico and Canada—on his first day in office, contingent upon halting migrant flows and the trafficking of fentanyl into the U.S.
Concerns over inflationary pressures were piqued by these comments, initially sending Treasury yields higher and adding pressure on equities. The 10-yr yield reached 4.32% earlier and the 2-yr yield was at 4.29% despite the sharp 17.3% month-over-month decline in new home sales for October and a notable drop in the November Consumer Confidence Report, which showed a 12-month inflation expectations reading of 4.9%—the lowest since March 2020 (though still elevated, it signals a trend in the right direction).
The bond market shook off its early fears, though, and yields settled below intraday highs. The 10-yr yield settled four basis points higher than yesterday at 4.30% and the 2-yr yield settled two basis points lower at 4.25%. The Treasury market was also reacting to the FOMC Minutes from the November 6-7 meeting, which didn't contain anything surprising, and a $70 billion 5-yr note offering that met solid demand.
Despite the negative skew in market breadth, the equity market also seemed to brush off some its early concerns. The S&P 500 (+0.6%), Nasdaq Composite (+0.6%), and Dow Jones Industrial Average (+0.3%) closed near their best levels of the day. The DJIA and S&P 500 also logged fresh record intraday highs.
The Russell 2000 (-0.7%) and S&P Mid Cap 400 (-0.4%) closed lower, largely driven by profit-taking activity. The former is still 10.4% higher this month and the latter sits on a 9.0% gain.
On an individual basis, Dow component Amgen (AMGN 280.01, -13.99, -4.8%) garnered some negative attention after disappointing news from its Phase 2 trial update for the weight-loss drug MariTide.
Other story stocks included retailers that reported earnings like Best Buy (BBY 88.48, -4.55, -4.9%), Kohl's (KSS 15.22, -3.12, -17.0%), Abercrombie & Fitch (ANF 146.62, -7.88, -5.1%), and Dick's Sporting Goods (DKS 212.22, -3.01, -1.4%).
- Nasdaq Composite: +27.7%
- S&P 500: +26.4%
- S&P Midcap 400: +21.4%
- Russell 2000: +19.6%
- Dow Jones Industrial Average: +19.0%
Reviewing today's economic data:
- September FHFA Housing Price Index 0.7%; Prior was revised to 0.4% from 0.3%
- September S&P Case-Shiller Home Price Index 4.6% (Briefing.com consensus 4.7%); Prior 5.2%
- November Consumer Confidence 111.7 (Briefing.com consensus 113.0); Prior was revised to 109.6 from 108.7
- The key takeaway from the report is that consumers' view of the present situation picked up nicely, particularly as it relates to the labor market. That is noteworthy because, if consumers feel good about job security and/or their ability to find a new job, they are apt to keep spending freely on discretionary goods/services.
- October New Home Sales 610K (Briefing.com consensus 718K); Prior 738K
- The key takeaway from the report is that new home sales, which are tabulated when contracts are signed, dropped sharply in October as mortgage rates rose sharply in the wake of the Fed's first rate cut in September. The effects of the hurricanes were also likely to blame for the extra weakness seen in the South, which is the nation's biggest region for new home sales.
Looking ahead, Wednesday's calendar features a big batch of economic data due to the market holiday this week. The lineup features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 1.7%)
- 8:30 ET: October Personal Income (Briefing.com consensus 0.3%; prior 0.3%), Personal Spending (Briefing.com consensus 0.2%; prior 0.5%), PCE Prices (Briefing.com consensus 0.2%; prior 0.2%), Core PCE Prices (Briefing.com consensus 0.3%; prior 0.3%), Q3 GDP -- second estimate (Briefing.com consensus 2.8%; prior 2.8%), Q3 GDP Deflator -- second estimate (Briefing.com consensus 1.8%; prior 1.8%), October Durable Orders (Briefing.com consensus 0.4%; prior -0.8%), Durable Orders ex-transportation (Briefing.com consensus 0.3%; prior 0.4%), October advance goods trade balance (prior -$108.2 bln), advance Retail Inventories (prior 0.8%), Advance Wholesale Inventories (prior -0.1%), weekly Initial Claims (Briefing.com consensus 217,000; prior 213,000), and Continuing Claims (prior 1.908 mln)
- 10:00 ET: October Pending Home Sales (Briefing.com consensus -1.5%; prior 7.4%)
- 10:30 ET: Weekly crude oil inventories (prior +0.545 mln)
- 12:00 ET: Weekly natural gas inventories (prior -3 bcf)
Stocks rise in front of closing bell
26-Nov-24 15:35 ET
Dow +108.79 at 44845.36, Nasdaq +91.22 at 19146.06, S&P +28.70 at 6016.07
[BRIEFING.COM] The major indices are extending gains heading into the close.
The 10-yr yield settled four basis points higher at 4.30% and the 2-yr yield settled two basis points lower at 4.25%. Also, the U.S. Treasury followed yesterday's strong sale of 2-yr notes with a $70 bln 5-yr note offering that was also solid.
Looking ahead, Wednesday's calendar features a big batch of economic data due to the market holiday this week. The lineup features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 1.7%)
- 8:30 ET: October Personal Income (Briefing.com consensus 0.3%; prior 0.3%), Personal Spending (Briefing.com consensus 0.2%; prior 0.5%), PCE Prices (Briefing.com consensus 0.2%; prior 0.2%), Core PCE Prices (Briefing.com consensus 0.3%; prior 0.3%), Q3 GDP -- second estimate (Briefing.com consensus 2.8%; prior 2.8%), Q3 GDP Deflator -- second estimate (Briefing.com consensus 1.8%; prior 1.8%), October Durable Orders (Briefing.com consensus 0.4%; prior -0.8%), Durable Orders ex-transportation (Briefing.com consensus 0.3%; prior 0.4%), October advance goods trade balance (prior -$108.2 bln), advance Retail Inventories (prior 0.8%), Advance Wholesale Inventories (prior -0.1%), weekly Initial Claims (Briefing.com consensus 217,000; prior 213,000), and Continuing Claims (prior 1.908 mln)
- 10:00 ET: October Pending Home Sales (Briefing.com consensus -1.5%; prior 7.4%)
- 10:30 ET: Weekly crude oil inventories (prior +0.545 mln)
- 12:00 ET: Weekly natural gas inventories (prior -3 bcf)
Stocks move sideways, yields move lower after Minutes
26-Nov-24 15:00 ET
Dow +57.90 at 44794.47, Nasdaq +78.78 at 19133.62, S&P +25.24 at 6012.61
[BRIEFING.COM] The three major indices trade near session highs with gains ranging fro, 0.1% to 0.4%.
Dell (DELL), HP Inc (HPQ), Nordstrom (JWN), Workday (WDAY), Autodesk (ADSK), Urban Outfitters (URBN), CrowdStrike (CRWD), Guess? (GES), and others report earnings after the close.
Elsewhere, Treasury yields moved lower after the release of the FOMC Minutes. The 10-yr yield is at 4.30% and the 2-yr yield is at 4.26%.
Gradual policy adjustments likely as inflation progresses toward 2% goal, according to FOMC minutes
26-Nov-24 14:30 ET
Dow -11.78 at 44724.79, Nasdaq +48.72 at 19103.56, S&P +16.85 at 6004.22
[BRIEFING.COM] The recently released minutes for the Nov. 6-7 FOMC meeting noted that, many participants observed that uncertainties concerning the level of the neutral rate of interest complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to reduce policy restraint gradually.
As it stands currently, the S&P 500 (+0.28%) is now in the lead among the major averages, holding up the best amid a modest post-minutes fade.
Getting back to the minutes, in their discussion of inflation developments, participants continued to observe that inflation had eased substantially from its peak, although core inflation remained somewhat elevated.
Further, in discussing the positioning of monetary policy in response to potential changes in the balance of risks, some participants noted that the Committee could pause its easing of the policy rate and hold it at a restrictive level if inflation remained elevated, and some remarked that policy easing could be accelerated if the labor market turned down or economic activity faltered. Many participants observed that uncertainties concerning the level of the neutral rate of interest complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to reduce policy restraint gradually.
What's more, relative to September, the real GDP growth projection for 2024 as a whole was higher, reflecting stronger-than-expected spending and labor market indicators.
Survey results indicated that respondents expected balance sheet runoff to continue alongside rate cuts for several more months; the surveys therefore suggested that the Committee's two policy tools—the policy rate and the balance sheet—were not seen as working at cross-purposes.
Yields held firm following the minutes, the yield on the benchmark 10-yr treasury note is up four basis points at 4.320%.
Gold manages modest gains despite geopolitical angst
26-Nov-24 13:55 ET
Dow +13.48 at 44750.05, Nasdaq +99.62 at 19154.46, S&P +24.38 at 6011.75
[BRIEFING.COM] The Nasdaq Composite (+0.52%) holds a narrow lead among the major averages ahead of the FOMC's Minutes from its Nov. 6-7 meeting, which are due at the top of the hour.
Gold futures settled $2.80 higher (+0.1%) to $2,621.30/oz, managing a modest gains amid Israel-Hezbollah ceasefire optimism as geopolitical risks keep markets uneasy.
Meanwhile, the U.S. Dollar Index is up about +0.3% to $107.09.
Best Buy is sold after registering a rare earnings miss on weaker-than-expected comps in Q3 (BBY)
Best Buy (BBY -6%) is being sold today after the consumer electronics and household appliance retailer registered its first earnings miss in five years in Q3 (Oct). The rare miss came on a wider same-store sales decline than expected, falling by -2.9%, well below BBY's prior forecast of around a -1% drop. Furthermore, although BBY has noticed improving customer demand over the past few weeks, it still lowered its FY25 financial targets.
- BBY's adjusted EPS of $1.26, missing the mark by a few pennies, stemmed from elevated promotional activity that struggled to reenergize demand. Like prior quarters, BBY continued to turn to promotions to stimulate sales growth. However, while these moves supported improving sales trends in the past, such as comps falling by just -2.3% last quarter compared to a -6.1% drop in Q1 (Apr), they no longer had the same effect in Q3.
- Customer demand softened considerably during September and October, leading to a 3.2% decrease in total revenue yr/yr to $9.45 bln, below analyst estimates. Management chalked up the deterioration to constant macroeconomic uncertainty, customers waiting on deals, and distraction during the run-up to the election. While the company anticipated lower demand between sales events, the impact was steeper than expected.
- Noticeably weak categories included appliances, home theater, and gaming, consistent with past quarters. This trend continues to spark concerns over market share loss. For instance, Costco (COST) commented that appliances enjoyed double-digit e-commerce growth in AugQ. The wholesale retailer's inclusive installation and haul-away services may be luring customers away from BBY, which charges a separate fee for similar services.
- Strength stemmed from computing, tablets, and services. Computing and tablet categories posted a combined +5.2% comp in Q3, while laptop comparable sales growth surged by +7.0%. AI PCs were not discussed much during BBY's conference call compared to previous quarters. Management briefly noted that it is in the early stages of continued AI advancement, likely spurring PC demand over the next few years.
- Following a disappointing quarter, BBY lowered its FY25 (Jan) guidance, projecting EPS of $6.10-6.25, down a dime at the high end, and revs of $41.1-41.5 bln, down from $41.3-41.9 bln. BBY also cut its comp outlook, anticipating negative 2.5-3.5% same-store sales growth compared to its previous negative 1.5-3.0% forecast.
Aside from a few silver linings surrounding computers and tablets, there was little to like in Q3. The cumulative inflationary environment extended its damage to BBY, halting the improvement in trends from Q2 (Jul). A similar dynamic unfolded at Target (TGT), which lowered its FY25 outlook last week after raising it just three months prior, citing a rapid deterioration in end-consumer demand, particularly surrounding discretionary merchandise.
BBY continues to express optimism in a broad upgrade cycle across computing and mobile phone categories, reflecting a desire to take advantage of AI features. However, sluggish growth across other categories could make it difficult for BBY to break free from its streak of yr/yr sales compression over the near term.
Burlington heads lower on Q3 results/guidance; BURL has more weather exposure than peers (BURL)
Burlington (BURL -1.3%) is heading lower following its Q3 (Oct) earnings report this morning. Following a huge beat on EPS, comps and adjusted EBIT margin in Q2 (Jul), this result was more pedestrian. Also, the stock had been running into this report, especially over the last few days. We think investors were looking for a repeat of Q2, but warm weather this fall stifled Burlington's Q3 results. Also, BURL guided Q4 EPS below analyst expectations.
- Starting with comps for this off-price retailer, they came in at +1%. This was in-line with prior guidance of +0-2%, but BURL tends to be conservative with guidance, so we view this as a letdown. The company was facing a couple of headwinds, which included a tough hurdle from +6% comps in the year ago period. Also, while Q3 comps started out very strong, warmer temperatures from mid-September onwards slowed its sales momentum.
- Notably, cold weather categories represent about 15% of sales in Q3 and Fall 2024 was significantly warmer than Fall 2023. Excluding these categories, Q3 comps would have been +4%. BURL's Q3 is typically dominated by back-to-school sales, which lasts through mid-September. After that, comp trends rely on weather.
- Importantly, Burlington is particularly sensitive to warmer weather in Q3. Remember that BURL was once called Burlington Coat Factory, so warm outerwear is still a key part of its assortment. For the full year, BURL's cold weather businesses represent almost a quarter of sales. This is significantly higher than its peers. Also, unseasonably warm temperatures do not just impact comps for cold weather merchandise. They also are also a drag on overall traffic, which affects every category.
- Looking ahead to the all-important Q4 (Jan) holiday season, BURL reaffirmed comp guidance at +0-2%. BURL is optimistic about the holidays and thus far in November, sales are ahead of plan. However, big sales weeks are still ahead of it. Also, given the late Thanksgiving, the holiday calendar is more compressed this year, which may be a headwind.
- Margins were also a bit lackluster in Q3 after huge upside in Q2. Adjusted EBIT margin in Q3 was 5.6%, an 80 bps improvement yr/yr, at the high end of +60-80 prior guidance. That pales in comparison to Q2's 160 bps improvement vs +30-50 guidance. For Q4, BURL expects a decrease of 50-80 bps.
Following Burlington's huge Q2 upside and strong reports last week from peers ROST and TJX, expectations were running high heading into this report. But these results are a reminder that BURL has much more exposure to cold weather than its off-price retail peers. At Briefing.com, we often roll our eyes when companies blame the weather because everyone is facing the same weather, but we think there is merit here. When it comes to Q4 expectations, keep an eye on the weather. If we have a cold Nov-Jan, that is good for BURL and could mean upside, especially because BURL is lapping a winter that was pretty mild last year. Cold weather might be a better predictor that peer performance.
Dick's Sporting Goods fades quick pop on Q3 results; recent rally priced in many highlights (DKS)
Dick's Sporting Goods (DKS -1%) fades a quick pop higher today, sparked by its Q3 (Oct) report again showcasing the sporting goods retailer's ability to extract the most out of a dynamic economic environment. DKS exceeded top and bottom lines for the fifth consecutive quarter on healthy same-store sales growth. DKS also raised its FY25 (Jan) earnings, sales, and comp forecasts, signaling a favorable holiday shopping season ahead.
Today's rapid pullback following highs of +5.8% likely resulted from the stock getting slightly ahead of itself. Shares soared by over +10% in just three trading sessions leading into Q3 numbers, pricing in plenty of the highlights from Q3.
- Revenue growth may have been relatively light at 0.5% yr/yr to $3.06 bln. Likewise, adjusted EPS ticked $0.10 lower yr/yr to $2.75. However, management warned last quarter that a key back-to-school week shifted out of Q3 and into Q2, hurting Q3 numbers. Therefore, a somewhat light top and bottom-line performance was expected.
- Conversely, since it adjusted for the calendar shift, same-store sales growth was robust, up +4.2% and consistent with the +4.5% posted last quarter. DKS noted the back-to-school season was excellent, with specific school-related categories, including footwear, athletic apparel, and team sports, performing strongly during the quarter. The company enjoyed a 4.8% jump in average ticket, partially offset by a 0.6% decline in transactions.
- Merchandise margins improved by 84 bps yr/yr, half the expansion from last quarter when DKS was still lapping favorable yr/yr figures due to elevated inventory shrink. DKS's steady margin improvements emanated from better sales mix and assortment quality. Alongside clearance inventory falling meaningfully yr/yr in Q3, management has emphasized bringing in higher-demand products, helping boost margins and differentiate it from competing retailers.
- Also acting as a significant competitive differentiator is DKS's ongoing comprehensive store remodeling. The company opened three House of Sport locations (its 100,000 square foot stores containing rock climbing walls, batting cages, ice rinks, etc.) during Q3, bringing it to 19 total locations ahead of the holiday season. In 2025, DKS anticipates opening around 15 more locations, putting it on track for 75-100 by 2027. Meanwhile, DKS is revamping its 50,000-square-foot "Field House" locations, which it said continued to do well in sales and profitability during Q3.
- DKS sees its upbeat momentum persisting to close out FY25. The company raised its adjusted EPS guidance to $13.65-13.95 from $13.55-13.90 and sales forecast to $13.2-13.3 bln from $13.1-13.2 bln. DKS also hiked its comp outlook for the year to +3.6-4.2% from +2.5-3.5%.
As has been the case all year, DKS is putting up impressive numbers despite operating in an economic environment ripe with promotions, a strained end consumer, and heightened uncertainty. Management mentioned that during Q3, growth was observed across all income demographics, even as it leaned less on markdowns. With DKS simultaneously outperforming its peers, this trend highlights its superb competitive advantage, stemming from its high-quality product assortment, attention to in-person shopping experiences with its ongoing store remodels, and ability to leverage sports' increasing influence on culture. Given this, we continue to view DKS as an attractive buy-and-hold retailer.
Sony adds to its upward momentum following reports it could be working on a portable console (SONY)
Sony (SONY +1%) adds to its upward momentum today after Bloomberg reported that the media giant was mulling a return to the portable console market. Sony, which owns the PlayStation brand, currently has a portable console on the market, the PlayStation Portal. However, it is merely a streaming device that requires a PlayStation 5 to operate. Therefore, the Portal is not much of a competitor to Sony's Japanese rival, Nintendo (NTDOY), which has dominated the portable console industry with its Nintendo Switch since Sony discontinued the PlayStation Vita in 2019.
Since the release of the Vita, the portable gaming market has seen a drastic change. Several Windows (MSFT), Android (GOOG), and Linux-based handhelds have entered the industry. Meanwhile, mobile gaming has snowballed, comprising more than half of all video game revenue globally. However, there are a few reasons why Nintendo continues to succeed and why it could spill over to Sony.
- Widespread retail availability and familiar intellectual property (IP) are factors behind Nintendo's success. Sony already has established its presence at retail and online shops with its PlayStation console and boasts plenty of popular IP, such as God of War and Gran Turismo, giving it a leg up on lesser-known systems based on Windows, Android, and Linux while helping it lure mobile gamers.
- Sony has experience in the handheld market. While it shipped half as many units as its Nintendo counterpart, Sony enjoyed outsized success with its PlayStation Portable device, which was released in 2004 and discontinued a decade later. Its successor console, the Vita, may have flopped compared to the PlayStation Portable, but past mistakes provide much-needed experience in developing a true rival to the Switch.
- The appetite for portable gaming remains robust. Even though sales for Nintendo have slowed in 2024 compared to years previous, this is largely due to the age of the Switch, which has entered its eighth year on the market. Nintendo mentioned earlier this month that despite yr/yr declines in Switch hardware and software, sales are strong compared to previous systems in their eighth year. Furthermore, Take-Two (TTWO), which owns mobile game publisher Zynga, remarked earlier this month that it was optimistic about the mobile game industry, further reflecting healthy portable gaming demand.
There is no confirmation that Sony will ultimately bring an actual portable console to market. Still, rumors of the company developing a successor to its PlayStation Vita are being met with some excitement today as it could prove disruptive to the long-standing portable console leader, capitalizing on a steady demand for handheld gaming.
Intel's federal grant reduced, but other transactions may more than make up the difference (INTC)
In a busy news morning for struggling chip maker Intel (INTC), the New York Times has reported that the U.S. government is planning to cut INTL's grant to under $8.0 bln from the initial preliminary amount of $8.5 bln. The grant, which originated from the CHIPS and Science Act, will help bridge a wide funding gap as INTC continues to embark on an ambitious U.S. manufacturing expansion plan that will require over $100.0 mln in capital to build factories in Ohio, Arizona, and New Mexico. According to the report, the decision to reduce the grant is related to the $3.0 bln award INTC received from the U.S. government in September to produce advanced chips for the Department of Defense.
- However, it's also plausible that INTC's ongoing woes played a role in the government's decision to hold back some capital. Earlier this year, the company announced that its Ohio plants were delayed by an additional two years, extending production until no earlier than 2027. Since then, INTC's quarterly results have been disappointing to say the least as it has fallen even further behind NVIDIA (NVDA) and Advanced Micro Devices (AMD) in the AI data center market. Cost-cutting actions, including the elimination of 15,000 jobs, and the suspension of its quarterly dividend have followed the poor results.
- The stock is shaking off news of the grant reduction, though, as investors focus on a pair of more positive developments. First, Bloomberg reported that Lattice Semiconductor (LSCC) is considering making an offer for INTC's full Altera unit, which makes chips used in telecom networks. INTC had been planning to sell a minority stake in Altera in an effort to streamline its operations and raise more capital, but for the right price, the company may divest the whole business.
- Private equity firms Bain Capital, Francisco Partners, and Silver Lake are also reportedly looking into a possible bid. It's unclear how much Altera could fetch, but it's worth noting that INTC purchased Altera for about $17.0 bln in 2015. In 3Q23, revenue for Altera plunged by 44% yr/yr to $412 mln. Given Altera's weak recent results, INTC will most likely have to take a sizable haircut on a deal, but the injection of capital from the sale would be viewed as a positive overall.
- Lastly, INTC also announced that it plans to sell and lease back its Folsom, California site in a move that will help the company save more money and generate cash from its real estate portfolio. The facility, which is home to approximately 5,000 employees, would remain fully operational after the transaction.
The main takeaway is that while the reduction in the federal grant is a disappointment, when taken together, this morning's news events indicate that INTC may be poised to generate and free up more capital to be allocated to its manufacturing expansion strategy.
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