Market Snapshot
| Dow | 43717.48 | -110.58 | (-0.25%) | | Nasdaq | 20243.12 | +316.40 | (1.59%) | | SP 500 | 6074.08 | +22.99 | (0.38%) | | 10-yr Note | 0/32 | 4.40 |
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| | NYSE | Adv 1097 | Dec 1674 | Vol 110 mln | | Nasdaq | Adv 2215 | Dec 2141 | Vol 8.8 bln |
Industry Watch
| Strong: Communication Services, Consumer Discretionary, Information Technology, Industrials |
| | Weak: Energy, Materials, Health Care |
Moving the Market
-- Buy-the-dip after last week's losses
-- Gains in some mega caps boosting index performance
-- Treasury yields turning higher, limiting stock performance somewhat
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Closing Summary
16-Dec-24 16:30 ET
Dow -110.58 at 43717.48, Nasdaq +316.40 at 20243.12, S&P +22.99 at 6074.08
[BRIEFING.COM] The S&P 500 (+0.4%) and Nasdaq Composite (+1.5%) closed off session highs, while the Dow Jones Industrial Average, which was trading higher initially, settled 0.3% lower. Market participants took advantage of weakness following last week's pullback in the major indices. The "buy-the-dip" mentality also coincided with a seasonally strong period for equities (the second half of December).
At the outset, advancers were outpacing decliners by a 3-to-2 margin at both the NYSE and Nasdaq. At the close, decliners at the NYSE led advancers by a 3-to-2 ratio, while advancers continued to hold a fractional advantage at the Nasdaq.
Rising interest rates, which surged last week following hotter-than-expected inflation data, dampened initially buying interest. The 10-year Treasury yield has edged up one basis point to 4.41%, while the 2-year yield has similarly risen one basis point to 4.25%.
Despite the pressure from rising rates, some individual stocks traded sharply higher, providing integral support to the S&P 500 and Nasdaq. Notable contributions came from Broadcom (AVGO 250.00, +25.20, +11.2%), Alphabet (GOOG 198.16, +6.78, +3.5%), and Tesla (TSLA 463.02, +26.79, +6.1%), all of which reached fresh 52-week highs.
Meanwhile, the equal-weighted S&P 500 closed 0.3% lower and seven S&P 500 sectors closed with declines. The energy sector registered the largest decline by a wide margin, dropping 2.2% amid sliding oil prices ($70.83/bbl, -0.46, -0.7%). The health care (-1.3%) and materials (-1.0%) sectors also logged solid declines.
The communication services (+1.3%), consumer discretionary (+1.7%), and information technology (+1.0%) sectors showed the largest advances among the four sectors in the green.
This week features a slate of market-moving events, including including the November Retail Sales, Industrial Production, Housing Starts, Existing Home Sales, and Personal Income and Spending reports, the latter of which features the Fed's preferred inflation gauge in the PCE Price Index. The main event will be the FOMC decision on Wednesday.
There is a 95.4% probability in the fed funds futures market of a 25 basis points rate cut on Wednesday, according to the CME FedWatch tool.
- Nasdaq Composite: +31.3% YTD
- S&P 500: +27.3% YTD
- S&P Midcap 400: +17.7% YTD
- Russell 2000: +16.5% YTD
- Dow Jones Industrial Average: +16.0% YTD
Reviewing today's economic data:
- December NY Fed Empire State Manufacturing 0.2 (Briefing.com consensus 10.0); Prior 31.2
- December S&P Global US Manufacturing PMI - Prelim 48.3; Prior 49.7
- December S&P Global US Services PMI - Prelim 58.5; Prior 56.1
Looking ahead to Tuesday, market participants receive the following economic data:
- 08:30 ET: November Retail Sales (Briefing.com consensus 0.5%; prior 0.4%) and Retail Sales, Ex-Auto (Briefing.com consensus 0.4%; prior 0.1%)
- 08:30 ET: November Industrial Production (Briefing.com consensus 0.3%; prior -0.3%) and Capacity Utilization (Briefing.com consensus 77.3%; prior 77.1%)
- 10:00 ET: October Business Inventories (Briefing.com consensus 0.2%; prior 0.1%)
- 10:00 ET: December NAHB Housing Market Index (Briefing.com consensus 47; prior 46)
Stocks move mostly sideways ahead of the close
16-Dec-24 15:40 ET
Dow -31.84 at 43796.22, Nasdaq +259.56 at 20186.28, S&P +29.69 at 6080.78
[BRIEFING.COM] The major indices moved mostly sideways in recent trading.
The 10-yr yield settled the cash session unchanged at 4.40% and the 2-yr yield was unchanged at 4.24%.
Looking ahead to Tuesday, market participants receive the following economic data:
- 08:30 ET: November Retail Sales (Briefing.com consensus 0.5%; prior 0.4%) and Retail Sales, Ex-Auto (Briefing.com consensus 0.4%; prior 0.1%)
- 08:30 ET: November Industrial Production (Briefing.com consensus 0.3%; prior -0.3%) and Capacity Utilization (Briefing.com consensus 77.3%; prior 77.1%)
- 10:00 ET: October Business Inventories (Briefing.com consensus 0.2%; prior 0.1%)
- 10:00 ET: December NAHB Housing Market Index (Briefing.com consensus 47; prior 46)
Market at or near all-time highs ahead of busy week
16-Dec-24 15:05 ET
Dow -19.56 at 43808.50, Nasdaq +255.29 at 20182.01, S&P +30.41 at 6081.50
[BRIEFING.COM] The S&P 500 (+0.5%) and Nasdaq Composite (+1.3%) trade near session highs, which marks a new all-time high for the Nasdaq. The S&P 500 is about 20 points lower than its all-time high.
This week features a slate of market-moving events, including including the November Retail Sales, Industrial Production, Housing Starts, Existing Home Sales, and Personal Income and Spending reports, the latter of which features the Fed's preferred inflation gauge in the PCE Price Index. The main event will be the FOMC decision on Wednesday.
There is a 95.4% probability in the fed funds futures market of a 25 basis points rate cut on Wednesday, according to the CME FedWatch tool.
Teradyne, NetApp ride JPM upgrades to top of S&P 500; Phillips 66 slides
16-Dec-24 14:30 ET
Dow -18.94 at 43809.12, Nasdaq +247.03 at 20173.75, S&P +29.16 at 6080.25
[BRIEFING.COM] The S&P 500 (+0.48%) is in second place on Monday afternoon, up about 30 points.
Elsewhere, S&P 500 constituents Teradyne (TER 129.51, +6.29, +5.10%), NetApp (NTAP 127.03, +5.08, +4.17%), and Alphabet (GOOG/L 197.64, +7.82, +4.12%) are among today's top gain getters. TER and NTAP were upgraded to Overweight at JP Morgan this morning; on TER, firm moved up on stronger TAM growth outlook, sees upside to 2026 targets, while GOOGL is higher after unveiling Veo 2 and upgraded Imagen 3 video and image generation models, and new creative tool 'Whisk'.
Meanwhile, Phillips 66 (PSX 116.90, -5.82, -4.74%) is one of the worst-performing constituents today after catching a price target cut to $147 at Mizuho and announcing is 2025 capital program as well as plans to sell 25% stake in Gulf Coast Express Pipeline for $865 million.
Gold slips ahead of Fed meeting amid geopolitical tensions
16-Dec-24 14:00 ET
Dow -9.00 at 43819.06, Nasdaq +247.61 at 20174.33, S&P +32.59 at 6083.68
[BRIEFING.COM] With about two hours to go on Monday afternoon, the tech-heavy Nasdaq Composite (+1.24%) holds a commanding lead among the major averages, up just shy of 250 points.
Gold futures settled $5.80 lower (-0.2%) to $2,670/oz, as geopolitical risks boost demand ahead of Fed policy meeting.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $106.85.
Western Union breaks out of recent consolidation after significant $1.0 bln repurchase plan (WU)
Western Union's (WU +5%) $1.0 bln share repurchase authorization lights a fire under its stock today, helping it break out of a month-long consolidation. Shares of the money-transfer firm have languished over the years, correcting by over 50% since 2021 highs. Thus far in 2024, the stock has underperformed, giving up around 6%. Competition in the money-transfer space has proven an intense headwind for WU, contributing to weak yr/yr revenue growth as the company has not seen a quarter above +3% since 2021.
However, signs of a turnaround have cropped up lately, potentially paving the way for a meaningful rebound in 2025.
- In Q3, WU's Consumer Money Transfer segment, its primary business at 92% of FY23 revs, delivered a fifth consecutive quarter of mid-single digit adjusted revenue growth, underpinning success surrounding ongoing improvements related to the company's Evolve 2025 strategy. The central pillar of Evolve 2025 is returning WU to a market-competitive position through customer and agent enhancements. Since 2023, WU has flipped back to a market share gainer, touting a low-teens percentage slice of the money transfer market.
- Alongside consistent performance in Consumer Money Transfer, WU's Branded Digital and Consumer Services segments have also been performing at a high level, expanding sales by 9% and 15% yr/yr, respectively, on an adjusted basis. While comprising a significantly smaller piece of WU's overall business, the uplifting trends across each of its segments have provided it the confidence that it is on the right track to return to profitable revenue growth.
- External forces have assisted WU's recent signs of a turnaround. The global average cost of transferring funds continues to increase as multiple competitors raise prices to improve profitability. This dynamic has caused smaller-scale players to exit the industry as demand dries up amid price hikes. WU's formidable global presence, operating in 200 countries and territories, has supported its capacity to better manage disruptions, such as those related to an increasing cost of capital.
WU's $1.0 bln repurchase authorization, representing 26% of its market cap, underpins management's confidence in future cash flows as the business begins to display encouraging turnaround signs. The $1.0 bln repurchase plan also signals that management views its shares as relatively cheap. With momentum mounting following another promising report in Q3, WU could enjoy a decent bounce next year.
Honeywell's days as an industrial conglomerate may be coming to an end as it considers breakup (HON)
After amassing a $5.0 bln stake in Honeywell (HON), Elliott Investment Management turned up the heat on HON's executives, pushing for a breakup of the industrial conglomerate that it believes would result in share gains of 51-75% over the next two years. It appears that HON's message was received as the company announced this morning that its exploring strategic alternatives for unlocking shareholder value, including the possible separation of its Aerospace business. Considering how successfully General Electric's separation has played out -- GE Aerospace (GE) has surged by 64% in 2024, while GE Vernova (GEV) has skyrocketed by 135% since the Apri1 1, 2024 spinoff -- it's easy to understand Elliott's argument for a breakup.
- While HON was already taking steps to simplify its business structure, including through the divestiture of its Personal Protective Equipment (PPE) business on November 22 for $1.25 bln, separating Aerospace and Automation would free each business to more fully focus on their own specific growth and capital allocation strategies. Furthermore, it could unlock more value, especially for Aerospace, which has been significantly outperforming the Industrial Automation, Building Automation, and Energy Solutions segments.
- For the nine months ended September 30, 2024, revenue for Aerospace Technologies increased by 15% to $11.47 bln and segment profit jumped by 18% to $3.2 bln. The segment, which manufacturers jet engines and a wide range of aircraft components, has benefited from a post-pandemic travel boom that has fueled a surge in new aircraft production and rising maintenance/repair/aftermarket needs. In contrast, Industrial Automation saw an 8.5% dip in revenue for the same period to $7.5 bln driven by soft demand for smart energy devices, PPE equipment, and warehouse automation products.
- The uneven performance between HON's segments has both weighed on the company's financial results and its stock price. When the company reported Q3 results on October 24, it posted a revenue miss and lowered its FY24 revenue guidance to $38.6-$38.8 bln from its prior outlook of $39.1-$39.7 bln, mainly due to weakness in Industrial Automation. That followed a Q2 earnings report in which it guided FY24 EPS below expectations. Accordingly, the stock has had trouble gaining ground in 2024, rising by about 9% compared to a 28% increase for the S&P 500 this year.
Even before Elliott entered the picture, HON was moving away from its diversified business model as it identified three primary trends to focus on: Automation, the Future of Aviation and Energy Transition. This new vision has resulted in the divestiture of its PPE business and its plans to spin-off the Advanced Materials business by the end of 2025 or early 2026. However, the moves don't go far enough in Elliott's eyes and now the stage is set for HON to take a page out of GE's playbook and break up the company. We believe such an action would be well received by the market as another aviation pure play would be made available to investors.
Capri Holdings springs higher following news of a potential sale of Versace and Jimmy Choo (CPRI)
Moving ahead as an independent luxury fashion designer following the termination of its merger with Tapestry (TPR), Capri Holdings (CPRI +7%) has been hanging on by a few threads lately. Shares were sliced in half after a judge blocked TPR's takeover of CPRI in late October, citing anti-competitive concerns within the luxury apparel and accessories industry. Since then, CPRI has traded sideways, continuing to hover around late 2020 levels.
However, there might be some signs of life. After the close on Friday, reports broke that CPRI was mulling the divestiture of its Versace and Jimmy Choo brands, retaining only its Michael Kors line, which comprised around 68% of FY24 (Mar) sales. Michael Kors was also CPRI's core brand before it acquired Jimmy Choo and Versace for $1.35 bln and $2.12 bln, respectively, over six years ago.
Even though Versace and Jimmy Choo brought in a combined $1.6 bln in FY24, well below what CPRI paid for the two brands, the company may be able to fetch a decent price for these banners, given their global name recognition and combined 470 retail stores. A cash injection could help CPRI pay down its debt and allow it to focus solely on one brand.
- After CPRI announced it would terminate its merger with TPR in mid-November, the company outlined its turnaround strategy, including potentially selling Versace and Jimmy Choo. Management conceded that the last year and a half were disappointing as demand for fashion luxury goods softened considerably worldwide, with a notable decline in China. Meanwhile, management ignored the long term due to its confidence in closing on the TPR merger, leading to several missteps in its efforts to reposition its brands, particularly Michael Kors and Versace.
- Within Michael Kors, CPRI tried implementing a broad transformation strategy, aiming to appeal to younger audiences but elevated prices too quickly. At the same time, CPRI reduced its signature product offerings and inventories through promotions, which greatly impacted its average selling price.
- However, CPRI commented that it has learned from its past blunders and is enacting many new initiatives to reenergize the Michael Kors banner. First, management will be deploying a new marketing plan beginning in the spring of next year while also upping its marketing investments. Furthermore, CPRI will be rebuilding its core and signature assortments, focusing on a more balanced product mix. Lastly, Michael Kors stores will be closing over the next two years; CPRI is aiming to shutter around 75 locations while renovating approximately 150.
CPRI was firmly confident that its merger with TPR would close, given the heightened competition within the luxury apparel space. Unfortunately for the company, the deal fell through. Now, CPRI must shift its priorities, potentially focusing exclusively on revitalizing its core Michael Kors brand following the news of a possible sale of Versace and Jimmy Choo. While going back to its roots might be the best way forward, plenty of uncertainty remains. Further developments may need to shake out before investors have a firmer picture of how CPRI may look moving forward.
Steel Dynamics guides Q4 EPS below expectations on lower prices and shipments (STLD)
Steel Dynamics (STLD) tends to provide EPS guidance around midway through the last month of every quarter. This steel producer maintained that routine this morning. Unfortunately, the Q4 EPS guidance at $1.26-1.30 was well below analyst expectations. This was STLD's third consecutive quarterly downside guidance, which is not a trend we like to see. In fairness, cold weather and the holidays tend to make Q4 a seasonally slower quarter, but this was still a letdown.
- The company expects its Q4 EPS to be meaningfully lower than Q3 results, based on lower prices, seasonally lower shipments, and an unplanned outage at its Butler Flat Roll Division. On the positive side, STLD said that flat rolled steel prices have stabilized. Also, underlying steel demand remains seasonally steady for the primary steel consuming sectors, as evidenced through solid customer order activity. Customers have been positive concerning the business outlook for 2025.
- Turning to its metals recycling operations, STLD expects Q4 results to be significantly higher than Q3, based on steady ferrous volume and flat average realized pricing. However, Q4 earnings from its steel fabrication operations are expected to be lower than Q3, based on seasonally lower shipments and less than a 5% decline in average realized pricing. The order backlog is steady, extending deep into 1H25 at attractive pricing levels.
- Steel Dynamics did not provide guidance for 2025, but did say current order activity is steady with expectations for improved volumes in 2025 as interest rates decline. Also, the US infrastructure program and onshoring are expected to positively impact demand for not only steel joist and deck products, but also for flat rolled and long product steel.
The stock is not moving on this news very much. We suspect that investors were already expecting a rough Q4 as steel prices remain depressed. The Trump tariffs should help decrease steel imports. However, while that is good for steel companies, that is likely to raise prices for steel consumers, including companies that make cars, appliances etc. They will pass those costs on to consumers, who are already feeling the inflation pinch. That may apply pressure to reduce the tariffs.
What STLD really needs is for interest rates to come down, which should unlock pent-up construction projects, increase demand for vehicles and get the housing market back on track, which impacts appliance sales. However, there are fears that some of the stated priorities of the new administration (tariffs, mass deportations leading to labor shortages and higher labor costs, tax cuts leading to higher deficit spending) could reignite inflation. And that may cause the Fed to pause on cutting rates. We see these concerns in how Treasuries are trading. After an initial post-election drop in rates, they have traded back up.
Under Armour gets sacked as turnaround plan fails to inspire confidence in FY25 prospects (UAA)
Athletic apparel, footwear, and equipment maker Under Armour (UAA) can't protect itself against a steep selloff in the wake of yesterday's Investor Meeting that was meant to inspire confidence in the company's ongoing turnaround plan. Instead, uncertainty regarding the timing and effectiveness of UAA's strategy only seemed to increase, prompting a nasty 14% drop over the past two sessions. While the company reaffirmed its FY25 EPS guidance of $0.24-$0.27, participants were left wanting for more, looking for concrete evidence that its new plan will yield stronger results in the coming quarters.
- There are several pieces to that plan, but the primary mission is to strengthen the product, brand, and commercial strategies, making UAA more competitive and improving its ability to deliver strong value creation for shareholders. While UAA's brand already lagged behind larger rival NIKE (NKE) -- which is dealing with its own innovation-related setbacks -- rising competition in the footwear category from brands like On Holdings (ONON) and Skechers (SKX) have only added to the challenges.
- Reinvigorating its product lineup and shifting more towards the premium side are key pillars of its strategy to reset and strengthen the brand, especially in the core North America market where UAA continues to struggle. In Q2, North American revenue fell by 13% yr/yr to $863 mln, compared to a decrease of just 5% for international in constant currency.
- It won't be a quick fix, though, as UAA's new product lineup won't launch until the fall of 2025, with a ramp up of those products not occurring until 2026. When the company reported Q1 results in early November, it guided for a 14-16% revenue decline in North America, which still appears to be the expectation after UAA reaffirmed its FY25 guidance yesterday.
- On a more positive note, UAA has reined in promotional and discounting activities, and it has kept a tight lid on expenses. As a result, gross margin expanded by 200 bps to 49.8% in Q2, while SG&A expenses decreased by 13% to $530 mln, leading to a 63% yr/yr surge in EPS to $0.39. Maintaining this pricing and cost discipline are also key components of UAA's turnaround plan, as reflected in its expectation for gross margin to improve by 125-150 bps in FY25.
Overall, UAA offered a detailed view of its strategy to turn its struggling business around, but the lack of progress that's expected for the remainder of FY25 is creating disappointment. Furthermore, without many details surrounding its new product lineup for the fall of 2025, there's still plenty of uncertainty regarding whether UAA's turnaround plan will even bear fruit next year.
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