Market Snapshot
| Dow | 44148.56 | -99.27 | (-0.22%) | | Nasdaq | 20034.43 | +347.65 | (1.77%) | | SP 500 | 6084.19 | +49.28 | (0.82%) | | 10-yr Note | -26/32 | 4.27 |
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| | NYSE | Adv 1449 | Dec 1277 | Vol 1.0 bln | | Nasdaq | Adv 2234 | Dec 2055 | Vol 6.6 bln |
Industry Watch
| Strong: Communication Services, Information Technology, Consumer Discretionary |
| | Weak: Health Care, Materials, Utilities, Real Estate |
Moving the Market
-- November Consumer Price Index was in-line with expectations, supporting rate cut narrative
-- Shelter index showed the smallest increases for owners' equivalent rent (+0.2%) and the index for rent (+0.2%) since April 2021 and July 2021, respectively
-- Market rates moving lower in response to CPI
-- Gains in mega caps and chipmakers supporting broader equity market
| Closing Summary
11-Dec-24 16:30 ET
Dow -99.27 at 44148.56, Nasdaq +347.65 at 20034.43, S&P +49.28 at 6084.19
[BRIEFING.COM] The S&P 500 (+0.8%) and Nasdaq Composite (+1.8%), which closed above 20,000 for the first time, settled near their session highs. The Russell 2000 (+0.6%) also logged a gain while the Dow Jones Industrial Average fluctuated around its previous close, settling 0.2% lower. Market breadth was broadly positive, reflecting a fairly broad advance, but gains in mega-cap stocks had a disproportionate impact on the S&P 500 and Nasdaq Composite.
Big winners in the mega-cap space included Amazon.com (AMZN 230.26, +5.22, +2.3%), Alphabet (GOOG 196.71, +10.18, +5.5%), Meta Platforms (META 632.68, +13.36, +2.2%), and Tesla (TSLA 424.77, +23.78, +5.9%), all of which hit new record highs today.
Investors are reacting to the November Consumer Price Index (CPI) report, which met expectations and reinforced the market's anticipation of an upcoming rate cut. Total CPI moved higher on a year-over-year basis to 2.7% from 2.6% and core CPI was at 3.3%, which is still above the Fed's 2% inflation target.
The likelihood of a 25 basis point rate cut by the FOMC next week increased. According to the CME FedWatch tool, the probability of a 25 basis point cut stands at 94.9%, up from 88.9% yesterday and 78.1% last week.
Treasury yields initially dropped after the CPI release, but the decline moderated. The 2-year yield fell to 4.12% from 4.17%, and settled the session at 4.16%. The 10-year yield dipped to 4.23% from 4.25%, but settled the cash session at 4.27%.
Earnings reports from several companies since yesterday's close sparked mixed reactions from investors. GameStop (GME 28.97, +2.04, +7.6%) and Stitch Fix (SFIX 6.64, +2.04, +44.4%) were standout winners, with their shares soaring following quarterly results. On the other hand, Macy's (M 16.58, -0.14, -0.8%) and Dave & Buster's (PLAY 29.41, -7.39, -20.1%) logged declines after disappointing earnings reports or guidance.
Other story stocks included General Motors (GM 52.04, -0.70, -1.3%), which traded lower after announcing it will cease funding Cruise's robotaxi development, and GE Vernova (GEV 343.80, +16.41, +5.0%), which raised its FY25 revenue guidance while reaffirming its FY24 revenue and free cash flow outlook.
- Nasdaq Composite: +33.5% YTD
- S&P 500: +27.6% YTD
- S&P Midcap 400: +19.1% YTD
- Russell 2000: +18.1% YTD
- Dow Jones Industrial Average: +17.1% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 5.4%; Prior 2.8%
- November CPI 0.3% (Briefing.com consensus 0.3%); Prior 0.2%, November Core CPI 0.3% (Briefing.com consensus 0.3%); Prior 0.3%
- There are two key takeaways from the report. The first is that the report wasn't worse than feared. It was right in-line with expectations; therefore, it did not upset the market's view that the Fed will cut rates another 25-basis points at next week's FOMC meeting. The second key takeaway is in the breakdown of the shelter index (+0.3%), which included the smallest increases for owners' equivalent rent (+0.2%) and the index for rent (+0.2%) since April 2021 and July 2021, respectively. With the lag effect of shelter costs on CPI computations, assumptions are being made that this variable will continue to factor favorably in future CPI reports and help temper future inflation readings.
- Weekly EIA crude oil inventories had a draw of 1.43 million barrels; prior draw of 5.07 million barrels
- The Treasury Budget for November showed a deficit of $366.8 billion compared to a deficit of $314.0 billion in the same period a year ago. The November deficit resulted from outlays ($668.5 billion) exceeding receipts ($301.8 billion). The Treasury Budget data are not seasonally adjusted so the November deficit cannot be compared to the October deficit of $257.5 billion.
- The key takeaway from the report is its worsening condition, which was driven in part by a large outlay for net interest that exceeded the outlay for national defense.
Looking ahead to Thursday, market participants receive the following data:
- 8:30 ET: November PPI (Briefing.com consensus 0.3%; prior 0.2%), Core PPI (Briefing.com consensus 0.2%; prior 0.3%), weekly Initial Claims (Briefing.com consensus 220,000; prior 224,000), and Continuing Claims (prior 1.871 mln)
- 10:30 ET: Weekly natural gas inventories (prior -30 bcf)
Econ data on Thursday
11-Dec-24 15:40 ET
Dow -28.89 at 44218.94, Nasdaq +356.56 at 20043.34, S&P +53.65 at 6088.56
[BRIEFING.COM] There hasn't been much up or down movement in recent action.
Adobe (ADBE) is among the names reporting earnings after the close. Ciena (CIEN) reports earnings ahead of the open tomorrow.
Looking ahead to Thursday, market participants receive the following data:
- 8:30 ET: November PPI (Briefing.com consensus 0.3%; prior 0.2%), Core PPI (Briefing.com consensus 0.2%; prior 0.3%), weekly Initial Claims (Briefing.com consensus 220,000; prior 224,000), and Continuing Claims (prior 1.871 mln)
- 10:30 ET: Weekly natural gas inventories (prior -30 bcf)
Treasury yields move up
11-Dec-24 15:00 ET
Dow -27.28 at 44220.55, Nasdaq +345.56 at 20032.34, S&P +53.15 at 6088.06
[BRIEFING.COM] The S&P 500 and Nasdaq Composite trade close to their highs of the day.
Treasury yields were already moving higher and selling continued after the latest economic release. The 10-yr yield is up fi ve basis points to 4.27% and the 2-yr yield is up one basis point to 4.16%. This price action also follows a strong $39 billion 10-yr note reopening.
The reopening drew a high yield of 4.235%, which stopped through the when-issued yield by nearly two basis points while the bid-to-cover ratio (2.70x vs 2.52x average) and indirect takedown (70.0% vs 67.4%) were comfortably above average.
November Treasury Budget reflects typical deficit amid accelerated December payments
11-Dec-24 14:30 ET
Dow -19.00 at 44228.83, Nasdaq +351.21 at 20037.99, S&P +52.15 at 6087.06
[BRIEFING.COM] The S&P 500 (+0.86%) is holding just a bit off session highs in current trading, not really reacting to the November Treasury Budget which hit at the bottom of the hour.
The Treasury Budget for November showed a deficit of $366.8 billion compared to a deficit of $314.0 billion in the same period a year ago. The November deficit resulted from outlays ($668.5 billion) exceeding receipts ($301.8 billion). The Treasury Budget data are not seasonally adjusted so the November deficit cannot be compared to the October deficit of $257.5 billion.
The key takeaway from the report is its worsening condition, which was driven in part by a large outlay for net interest that exceeded the outlay for national defense.
Gold surges 1.4% to as Fed rate cut sentiment gains momentum
11-Dec-24 13:55 ET
Dow +5.87 at 44253.70, Nasdaq +351.28 at 20038.06, S&P +54.28 at 6089.19
[BRIEFING.COM] With about two hours to go on the session the tech-heavy Nasdaq Composite (+1.78%) holds a commanding lead among its counterparts; as a reminder, the November Treasury budget is due out at the top of the hour.
Gold futures settled $38.30 higher (+1.4%) to $2,756.70/oz, pushing week-to-date gains above +3.6% now, as steady inflation data fuels rise in Fed rate cut sentiment.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $106.63.
GE Vernova powers higher as set of bullish guidance reflects emerging AI-based growth catalyst (GEV)
In the wake of yesterday's Investor Update event, GE Vernova (GEV) is powering higher once again, continuing a spectacular move that has seen shares soar by 145% since last April's spin-off from General Electric. As part of that event, GEV provided a slate of forward guidance that painted a bullish picture for the company's expected sales and margins in both the near- and longer-term timeframes. Additionally, the company announced a $6.0 bln share repurchase program and initiated its first quarterly dividend of $0.25/share.
The strong outlook and shareholder-friendly capital allocation plans solidified the notion that GEV, which consists of General Electric's former power, wind, and energy segments, is poised to benefit from a rapidly growing need for more power due to the proliferation of AI data centers, the electrification of many products, and increasing investments in an aging power grid.
- For FY24, GEV sees revenue trending towards the higher end of its prior guidance range of $34.0-$35.0 bln, with free cash flow also trending towards the upper end of its forecasted range of $1.3-$1.7 bln. The company also increased it free cash flow guidance to $2.0-$2.5 bln from $1.2-$1.8 bln. Fueling the brighter outlook is GEV's Power and Electrification businesses as demand for gas turbines and electrical grid equipment continues to strengthen. Rewinding to its Q3 earnings report on October 23, Power saw orders surge by 34% yr/yr to $5.2 bln, while orders for Electrification jumped by 17% organically.
- Looking out to FY25, GEV raised its revenue guidance to $36-$37 bln from its former outlook of mid-single digit growth, which implied revenue of $35-$37 bln. Meanwhile, free cash flow is expected to increase to $2.0-$2.5 bln compared to its initial guidance of $1.2-$1.8 bln.
- In our view, what really stands out within GEV's batch of guidance is its expectation for much stronger margins in the years ahead. Specifically, the company now sees EBITDA margins expanding to 14% by 2028, from 5.5-6.0% in FY24 and high-single digits in FY25. This expansion will be driven by better equipment pricing in Power and Electrification, a leaner organization, and healthy margins from services.
- Still, GEV is not quite firing on all cylinders. The company's Wind business continues to struggle amid supply chain challenges, inflationary pressures, and delays in offshore projects in the U.S. and abroad. With President-elect Donald Trump also taking aim at the wind energy industry, the future doesn't look very bright, either. In fact, CEO Scott Strazik stated that the company isn't taking new orders for offshore wind turbines and is anticipating more losses for wind next year.
Overall, GEV's Investor Update event added more fuel to the fire for bulls as the company's strong guidance affirmed its place as a major beneficiary of the AI data center boom.
Albertsons slips after terminating its merger with Kroger (KR) following court rulings (ACI)
Kroger (KR) moves higher while Albertsons (ACI) encounters modest selling pressure today after court rulings temporarily blocked the previously announced $25.0 bln merger between the two grocery chains, leading Albertsons to terminate the deal. Kroger had expressed confidence in the deal closing during past quarterly conference calls since announcing the merger in late 2022. The takeover was met with skepticism as it would have had to overcome significant regulatory barriers, particularly since the two companies are among the few remaining pure national grocery chains. Earlier this year, the FTC sued to block the merger, alleging that the deal was anticompetitive, with the merger possibly leading to higher prices and lower-quality products.
Today, a judge for the District of Oregon and a judge for the Washington State court temporarily blocked the deal, agreeing with the FTC regarding concerns over anti-competitiveness. As a result of these rulings, Albertsons decided to terminate its merger agreement with Kroger. Albertsons instead authorized a $2.0 bln repurchase plan and increased its quarterly dividend by 25%, giving it an annual yield of 3.2%. Albertsons also outlined its FY24 (Feb) financial outlook, projecting identical sales growth of +1.8-2.2% and adjusted EPS of $2.20-2.30.
As both companies now go their separate ways, what is next?
- Albertsons filed a lawsuit against Kroger for breaching the terms of the merger agreement. Albertsons alleges that Kroger repeatedly refused to divest certain assets necessary for antitrust approval, ignored regulator feedback, and rejected divestiture buyers. Albertsons is suing for billions of dollars in damages. It is unclear how this lawsuit will shake out at this early stage. However, Kroger's unadjusted earnings could take a hit sometime down the road if ordered to pay billions in damages.
- Kroger recently reported its Q3 (Oct) results, highlighting several sustained tailwinds. Mainstream households continue to drive positive comp growth, while healthy private label demand supported decent margin gains. Meanwhile, during the conference call, CEO Rodney McMullen noted that business would continue even if the merger with Albertsons were to fail. Mr. McMullen added that mergers remain an opportunistic way to grow the business, leaving the door open to other possible deals.
- Due to the former pending merger with Kroger, Albertsons has not held a conference call for some time. However, in its recent Q2 (Aug) report, the company performed similarly to Kroger, registering a +2.5% bump in comps and minor gains from ongoing productivity initiatives. However, labor wages remain a headwind, which could erode future margins.
Albertsons cutting ties with Kroger following state and federal hurdles surrounding the massive $25.0 bln merger could produce near-term challenges for both firms, primarily due to the intense competitiveness within the grocery industry. Mass merchants like Walmart (WMT) and Costco (COST) benefit from consumers consolidating their shopping trips and hunting for the best value amid the inflationary environment. WMT repeatedly notes each quarter that it is gaining additional market share in the U.S. in grocery. While comp growth may remain healthy for Albertsons and Kroger, a heightened competitive landscape could eat into their margins, producing bottom-line volatility.
General Motors makes a U-turn on Cruise robotaxi business, providing meaningful cost savings (GM)
Already contending with a highly competitive landscape in both ICE (internal combustion engines) and EV markets, General Motors (GM) has decided to step away from a developing robotaxi market that has become a focal point for automotive and tech behemoths like Tesla (TSLA), Google's (GOOG) Waymo, and Uber (UBER). The Cruise robotaxi U-turn and related restructuring actions are expected to reduce GM's spending by more than $1.0 bln annually once the plan is completed in 1H25, while the company will also be freed to concentrate more on its core businesses.
- Speaking of GM's core businesses, they have been performing quite well recently, so it's understandable that the company is looking to allocate more resources towards its ICE and EV businesses. Despite the fiercely competitive market and sluggish EV sales trends, GM delivered a strong beat-and-raise Q3 earnings report on October 22, driven by volume growth in both ICE and EVs.
- In particular, trucks and SUVs, such as Chevrolet Silverado, Colorado, and GMC Sierra, have been areas of strength, which have supported higher margins and EBIT. In Q3, the company's adjusted EBIT grew by 15.5% yr/yr to $4.12 bln, enabling it to boost the low end of its FY24 EBIT forecast to $14-$15 bln from $13-$15 bln.
- Meanwhile, U.S. EV deliveries jumped by 60% yr/yr to 32,195 vehicles in Q3, and GM surpassed 300,000 EV deliveries this past October, making it the second largest seller of EVs in the country.
- On the other hand, the Cruise business has continued to weigh on GM's profitability and cash flow. For the nine-month period ending September 30, 2024, Cruise posted adjusted EBIT of $(1.28) bln and cash flow from operations was $(1.75) bln.
- However, GM is not planning to ditch autonomous driving technology altogether. Instead of focusing on robotaxis, the company will prioritize ADAS and autonomous driving systems for personal vehicles by expanding and investing in its Super Cruise assisted driving system, which is already offered in more than twenty GM vehicle models. Additionally, GM intends to boost its ownership position in Cruise to over 97% from its current stake of about 90% as it strives to ultimately launch fully autonomous vehicles in the coming years.
- While the initial reaction to this development was positive, owning to the near-term cost savings and associated earnings bump, the stock has since reversed course and is now trading lower. We believe this is attributable to GM throwing in the towel on a business that it initially believed could generate $50 bln in revenue by 2030, erasing a potentially significant growth catalyst and clearing the path for TSLA and GOOG to capitalize on the robotaxi opportunity.
The main takeaway is that while the decision to abandon the highly unprofitable Cruise robotaxi business will lower GM's cost structure and provide a near-term lift to earnings, there's some concern that the move is short-sighted from a longer-term perspective as it eliminates the possibility of GM capitalizing on a robotaxi opportunity that could blossom into a huge market.
Dave & Buster's sells off today following deteriorating comps in Q3, CEO resignation (PLAY)
Investors are not playing around today, sending shares of Dave & Buster's (PLAY -14%) back toward 2024 lows after missing Q3 (Oct) earnings and sales estimates. The entertainment and restaurant chain also announced that its CEO, Chris Morris, resigned, appointing the current Chairman, Kevin Sheehan, as interim CEO until a permanent replacement is found.
PLAY has been on a downward spiral since reaching five-year highs in April, as a weak economic backdrop finally caught up with the company, resulting in softening sales trends. What took the market by surprise earlier this year was that a broader shift among consumers toward experiences and entertainment was not benefiting PLAY. Management immediately took action, deploying several strategic initiatives, including revamping its menu and remodeling its stores. These moves came at a steep cost, not only in the financial cost of developing new recipes, games, and interiors but also in the opportunity cost of shuttering stores undergoing remodeling.
Following some silver linings related to PLAY's comprehensive turnaround plan last quarter, performance languished in Q3. Making matters worse, PLAY is now without its CEO, who oversaw its strategic plan, injecting additional uncertainty.
- Same-store sales deteriorated from last quarter, dropping by -7.7% in Q3 compared to -6.3%. While the quarter tends to be PLAY's lowest seasonal quarter from a volume and margin standpoint, results were made worse by adverse weather across several key markets and disruption to certain stores under remodel construction. Producing additional frustration today is that management pointed to healthy forward bookings last quarter as a sign of strength for the back half of FY25 (Jan).
- Sluggish comps weighed on profitability. Adjusted EBITDA margins slid by 240 bps yr/yr to 15.1%. Adjusted EPS went from positive $0.01 in the year-ago quarter to negative $(0.45) in Q3. On the bright side, PLAY continues to optimize its cost structure, which, combined with its various top-line initiatives, is expected to lead to margin growth in the coming quarters.
- Speaking of top-line initiatives, PLAY is focused on six core pillars, from better marketing and strategic pricing to improved food and beverage, remodels, and special events. Thus far, the initiatives have yet to lead to material outperformance. However, PLAY remains confident in its plan. For instance, the company has engaged a new marketing agency, which it believes will drive revenue growth, pointing to a test launch of a promotion that resulted in higher visit frequency. Additionally, tests of the remodeled stores show higher returns than previous layouts.
While the bright spots from last quarter were encouraging, we noted that too much uncertainty existed in the economy and surrounding PLAY's strategic moves, cautioning that it remains better to employ a wait-and-see attitude. Given the slipping performance in Q3, we continue to hold this view. PLAY already had plenty on its plate without the additional hassle of conducting a CEO search. Meanwhile, it is unclear if new marketing, promotions, food items, and remodeling are enough to overcome a shaky economic environment and produce a meaningful turnaround effect over the near future.
Ollie’s Bargain Outlet surges despite modest earnings beat; Q4 outlook was reassuring (OLLI)
Ollie's Bargain Outlet's (OLLI +14%) is trading sharply higher after reporting Q3 (Oct) earnings results this morning. OLLI reported a slight beat on EPS. Revenue grew 7.8% yr/yr to $517.43 mln, which was generally in-line. This follows six consecutive quarters of double-digit revenue growth. The full year guidance was generally in-line.
- Comps declined a bit at -0.5% in Q3 with both transactions and basket down slightly. This was a good-sized drop off from Q2's +5.8% comp. However, OLLI was lapping a robust +7.0% comp. Demand for everyday consumer staples was strong throughout the quarter. Its best-performing categories were food, candy, housewares, and furniture. OLLI is also seeing growth in its younger customer demographic and retention of higher income customers.
- OLLI noted that its growing relationships with major manufacturers is leading to strong product flow and a more consistent assortment of merchandise. Consumers want value and suppliers need bigger partners. As the largest buyer of closeouts in excess inventory, OLLI says it's benefiting from these two trends. The growth of large retailers and suppliers has led to bigger order sizes, higher levels of excess inventory, and growth in the closeout industry.
- The company also explained that while it is getting larger, other closeout players are shrinking or going away altogether. This is leading to stronger vendor relationships and increased deal flow.
- Another positive is that OLLI has acquired a number of real estate sites that has bolstered its new store pipeline. This includes former 99 Cents Only stores in Texas, which were acquired out of bankruptcy in May. More recently, OLLI has acquired 17 former Big Lot locations. Similar to the 99 Cent Only stores, these stores are the right size, located in good trade areas, have attractive rents and leasing structures. OLLI sees the Midwest as an area that contains significant growth potential.
- Looking ahead, we think investors were pleased to hear OLLI say its Q4 (Jan) holiday outlook is largely unchanged. OLLI feels good about its positioning heading into the Christmas holiday. OLLI was pleased with its Black Friday weekend sales. Q4 is typically OLLI's largest revenue quarter of the year, so it's important and investors generally like what they heard on the call.
- A potential concern for OLLI is that direct imports from China account for approximately 50% of its product flow in any given year. Tariffs on China are a concern, but the company explained that its flexible buying model allows it to adjust pricing to reflect changes in the marketplace and pivot between different products. Another concern was the recent port strikes, but OLLI said that was a non-event.
Overall, OLLI's headline numbers and guidance do not warrant such a big move today. However, we think OLLI calmed some nerves about tariffs and the port strikes. Also, we think investors were bracing for worse given the hurricanes and consumers pulling back on discretionary items heading into the holidays. Looking ahead, recall that new CEO Eric van der Valk will take the helm on February 1 when current CEO John Swygert becomes Executive Chairman.
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