Market Snapshot
briefing.com
| Dow | 29654.24 | +517.22 | (1.78%) | | Nasdaq | 11027.25 | +197.89 | (1.83%) | | SP 500 | 3714.21 | +66.85 | (1.83%) | | 10-yr Note | +62/32 | 3.71 |
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| | NYSE | Adv 2687 | Dec 401 | Vol 1.0 bln | | Nasdaq | Adv 3115 | Dec 1051 | Vol 4.5 bln |
Industry Watch
| Strong: Energy, Materials, Financials, Health Care |
| | Weak: -- |
Moving the Market
-- Big pullback in Treasury yields
-- Bounce from oversold conditions
-- Sizable losses for Apple after Bloomberg reported plans to hold back on increasing production of the iPhone 14
-- Bank of England announcing a plan to purchase long-dated UK government bonds in an attempt to "restore orderly market conditions"
| Closing Summary
28-Sep-22 16:25 ET
Dow +548.75 at 29685.77, Nasdaq +222.13 at 11051.49, S&P +71.75 at 3719.11
[BRIEFING.COM] The stock market was in rally mode today, bouncing from oversold conditions. The S&P 500, which set a new low for the year yesterday (3623.29), broke a six-session losing streak and closed above the 3,700 level. The stage was set for a strong rebound effort before the stock market opened as Treasury yields fell in response to a Bank of England (BoE) bond purchase announcement. The major averages were all able to log big gains despite losses in Apple (AAPL 149.84, -1.92, -1.3%) following a Bloomberg report that the company plans to hold back on increasing production of the iPhone 14.
The 10-yr note yield breached the 4.00% level overnight before the BoE said it is going to postpone the sale of gilts slated to begin next week and instead carry out temporary purchases of UK government bonds between September 28 and October 14 in a bid to restore orderly market conditions. The 10-yr note yield dropped 26 basis points on the day to 3.71% and the 2-yr note yield dropped 21 basis points to 3.71%.
The U.S. Dollar Index also fell noticeably after the announcement, down 1.2% to 112.75 with GBP/USD +1.4% to 1.0879.
Buying was broad in nature with many stocks coming along for the ride. Apple, however, logged a decent loss following a Bloomberg report that indicated it's pulling back on a plan to increase production of its iPhone 14 beyond its original target of 90 million units due to weaker-than-expected demand.
Despite losses for Apple, the information technology sector was able to squeeze out a 0.9% gain. Notably, it finished the session in last place for the 11 S&P 500 sectors. Energy (+4.4%) and communication services (+3.2%) rose to the top of the leaderboard.
Communication services had Netflix (NFLX 245.20, +20.84, +9.3%) to thank for its gains after the company received an upgrade to Overweight from Neutral at Atlantic Equities.
Another bright spot in the market was health care (+2.2%), boosted by Biogen (BIIB 276.61, +78.82, +39.9%), which surged after reporting its early Alzheimer's treatment drug, Lecanemab, met its Phase 3 clinical trial primary endpoint.
Energy complex futures settled higher with WTI crude oil futures rising 4.1% to $81.96/bbl and natural gas futures rising 2.0% to $6.93/mmbtu.
Looking ahead to tomorrow, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 213,000; prior 213,000), Continuing Claims (prior 1.379 mln), Q2 GDP -- third estimate (Briefing.com consensus -0.6%; prior -0.6%), and Q2 GDP Deflator -- third estimate (Briefing.com consensus 8.9%; prior 8.9%)
- 10:30 ET: Weekly natural gas inventories (prior +103 bcf)
Reviewing today's economic data:
- Weekly MBA Mortgage Application Index showed a 3.7% drop following last week's 3.8% increase
- August Advance report for International Trade in Goods showed a deficit of $87.3 billion versus the revised deficit of $90.2 billion (from $89.1 billion) in July. The Advance report for Retail Inventories rose 1.4% versus the increase of 1.1% in July. The Advance report for Wholesale Inventories rose 1.3% versus July's revised increase of 0.6% (form 0.8%)
- August Pending Home Sales dropped 2.0% (Briefing.com consensus -0.5%) following a revised 0.8% decrease (from 1.0%) in July
- Weekly EIA Crude Oil Inventories showed a draw of 0.215 million barrels after last week's 1.14 million barrel build
Dow Jones Industrial Average: -18.3% YTD
S&P Midcap 400: -20.3% YTD
S&P 500: -22.0% YTD
Russell 2000: -23.6% YTD
Nasdaq Composite: -29.4% YTD
Market pushed higher into close
28-Sep-22 15:30 ET
Dow +607.80 at 29744.82, Nasdaq +240.58 at 11069.94, S&P +79.60 at 3726.96
[BRIEFING.COM] The stock market is inching higher ahead of the close.
The Russell 2000 shows the biggest gains, up 3.3%.
Looking ahead to tomorrow, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 213,000; prior 213,000), Continuing Claims (prior 1.379 mln), Q2 GDP -- third estimate (Briefing.com consensus -0.6%; prior -0.6%), and Q2 GDP Deflator -- third estimate (Briefing.com consensus 8.9%; prior 8.9%)
- 10:30 ET: Weekly natural gas inventories (prior +103 bcf)
Market comes off highs
28-Sep-22 15:05 ET
Dow +517.22 at 29654.24, Nasdaq +197.89 at 11027.25, S&P +66.85 at 3714.21
[BRIEFING.COM] In recent trading, the market continued to pullback from session highs but maintains solid gains.
Treasury yields continue to fall. The 2-yr note yield is down 21 basis points to 4.10% and the 10-yr note yield down 26 basis points to 3.71%.
Energy complex futures made sizable upside moves today. WTI crude oil futures settled up 4.1% to $81.96/bbl and natural gas futures settled up 2.0% to $6.93/mmbtu.
CarMax gains ahead of earnings, VFC slips after guidance
28-Sep-22 14:30 ET
Dow +404.03 at 29541.05, Nasdaq +148.46 at 10977.82, S&P +51.24 at 3698.60
[BRIEFING.COM] We've slipped a hair off session highs in recent trading, the benchmark S&P 500 (+1.40%) now narrowly in front.
S&P 500 constituents Marathon Petroleum (MPC 98.62, +5.77, +6.21%), CarMax (KMX 85.59, +4.44, +5.47%), and Target (TGT 155.69, +7.22, +4.86%) pepper the top of the index. MPC is higher alongside gains in crude oil prices, and KMX gains in front of tomorrow morning's earnings report.
Meanwhile, apparel firm V.F. Corp (VFC 33.45, -1.62, -4.62%) slips to the bottom of the standings following guidance.
Gold solidly higher as fears grow; dollar, yields fall
28-Sep-22 14:00 ET
Dow +416.59 at 29553.61, Nasdaq +136.50 at 10965.86, S&P +51.51 at 3698.87
[BRIEFING.COM] We're still decently higher in the major averages with about two hours remaining on Wednesday, the tech-heavy Nasdaq Composite (+1.26%) still at the "bottom" of the standings, albeit on gains of more than 136 points.
Gold futures settled $33.80 higher (+2.1%) to $1,670.00/oz, fueled in part by safe haven attraction given ongoing recession fears, losses in the greenback, and a dip in yields.
Meanwhile, the U.S. Dollar Index is down about -1.2% to $112.71.
BoE bond purchase plan soothes market for now
The equity futures market was noticeably weaker overnight as the 10-yr note yield topped 4.00%. It saw some welcome improvement, however, as did the 10-yr note, when the Bank of England (BoE) announced a plan designed to restore proper market functioning in the UK government bond market.
The BoE's plan will involve postponing gilt sale operations slated to begin next week. Instead, the BoE "...will carry out temporary purchases of long-dated UK government bonds from 28 September."
The scope of the purchases will be carried out "on whatever scale is necessary" to effect orderly market functioning, although the purchase operations will be strictly time limited, ending October 14. The bank intends to make the first gilt sales on October 31 and stick to its plan whereby its holdings of UK bonds will be reduced by GBP80 bln annually.
In a Pavlovian fashion, the BoE's announcement was the ringing of the bell for many market participants. The 10-yr UK gilt yield came well off a high approaching 4.60% and now trades at 4.02%. In turn, the 10-yr Treasury note yield has backed down to 3.86% and the equity futures market has sharply pared its overnight losses.
Currently, the S&P 500 futures are up 12 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down seven points and are trading slightly below fair value, and the Dow Jones Industrial Average futures are up 142 points and are trading 0.5% above fair value.
One can assume that the reversal has some moral hazard roots in it. In other words, here is yet another case of a central bank intervening in the markets to keep bad things from happening. The assumption is that the Fed would be compelled to do the same if the Treasury market went haywire (or decidedly more haywire than it has already); hence, the rapid downtick in Treasury yields off an announcement that only directly affects the UK government bond market.
To be fair, the UK government put the BoE in a bad spot with its stunning tax cut plan. Traders -- and, now, even the IMF -- found reason to castigate the UK government's plan as ill-advised at this juncture. Still, we have our doubts that the BoE's plan will be the silver bullet to kill all of the angst that has been pressuring the pound and UK bond market since the tax cut announcement considering its plan doesn't have permanency.
There is an end date (October 14), and unless the UK government renounces its own tax cut plan, the same issue will be hanging over the market come October 15. That may be why the British pound hasn't necessarily come screaming back after today's announcement. GBP/USD is off its low (1.0540), but still down 0.5% at 1.0680.
Anyway, that is something not to lose sight of amid today's reversal.
We can tell the market is captivated by the BoE announcement, because it has managed to bounce back in spite of a Bloomberg report that suggests weak demand is prompting Apple (AAPL) to hold back on increasing production of the iPhone 14 above its original target of 90 million units. Shares of AAPL are down 2.4%.
On a better note that extends beyond the stock market, shares of Biogen (BIIB) have soared nearly 50% following the news that its early Alzheimer's treatment drug, Lecanemab, met its Phase 3 primary endpoint. That is decidedly positive news, as the stock's response suggests, and we can all hope that there is permanency to this particular development.
Again, that isn't the case for the BoE plan, but that doesn't mean it can't be a positive market driver (for a market that needs a positive driver) on a temporary basis.
-- Patrick J. O'Hare, Briefing.com
Biogen soaring as promising clinical trial data provides second chance to lead AD market (BIIB)
Biogen (BIIB) is skyrocketing higher and generating plenty of buzz after the company and its Japanese development partner, Eisai, announced positive Phase 3 data for their Alzheimer's Disease (AD) treatment, lecanemab. The study met its primary endpoint by reducing cognitive and functional decline by 27% after 18 months of treatment. This is not only potentially great news for BIIB and for AD patients, it's also surprising news given the company's recent disappointment with aduhelm.
Aduhelm, a once promising treatment for AD, was also co-developed with Eisai and received a controversial FDA approval in June 2021. If fact, many were stunned by the approval because an FDA advisory committee voted nearly unanimously against approving the drug in November 2020. Ultimately, though, aduhelm failed to gain market acceptance, especially after the Centers for Medicare and Medicaid Services (CMS) said that Medicare would limit its coverage of monoclonal antibodies for treatment of AD to only those patients who participate in clinical trials. Importantly, that decision applied to all drugs in that category.
With this turn of events, BIIB's AD program fell off the radar as expectations declined for its other drug candidates. Notably, like aduhelm, lecanemab also targets a protein plaque called amyloid beta, which is believed to be the key agent behind the progression of AD. Due to this similarity, hopes for lecanemab were not very high. However, lecanemab apparently takes aim at a different amyloid than aduhelm, potentially explaining the difference in efficacy. On that note, aduhelm was only shown to significantly reduce a certain plasma (p-tau181) that's been correlated to cognitive and functional decline in AD, rather than shown to meaningfully reduce actual cognitive decline.
Investors who were burned on the high hopes that surrounded aduhelm can be forgiven for feeling a bit skeptical about today's developments, but this truly does look like a landmark event. Every secondary endpoint was also met in the study, while the incidence of amyloid-related imaging abnormalities-edema/effusion fell within the expected range. Other key points to consider include:
- The full results of the clinical trial will be published in a peer-reviewed journal in November. These results will serve as the basis for whether the FDA grants approval to lecanemab on January 2, 2023 -- the current PDUFA date.
- If approved, BIIB will have to split the profits evenly with Eisai. That obviously limits BIIB's profit potential, but the addressable market is huge with approximately 6.5 mln people in the U.S. alone suffering from AD. Furthermore, little progress has been made over the years in treating AD, limiting lecanemab's competition. The bottom line is that lecanemab would likely become a multi-billion drug for BIIB should it receive FDA approval.
- Other pharmaceutical companies, such as Eli Lilly (LLY), Roche (RHHBY), Acumen Pharmaceuticals (ABOS), and Prothena (PRTA), also have AD drugs in various stages of clinical trials. Each of these stocks are rallying today, with ABOS and PRTA exploding to the upside as both of those companies are developing AD and neurodegenerative treatments that focus on amyloid protein reduction.
The pathway to gaining FDA approval and market acceptance for a new drug can be a rollercoaster ride, as we saw with aduhelm. If lecanemab does receive FDA approval, there will be another hurdle to jump in the form of the CMS's policy of not covering amyloid-targeting drugs. Perhaps the CMS will change its tune based on the positive trial results for lecanemab. The main takeaway, though, is that today's unexpected good news may be a game-changer for BIIB and for those suffering from AD.
BlackBerry lower despite modest upside; automotive supply chain issues remain a headwind (BB)
BlackBerry (BB -2%) is trading a bit lower following its Q2 (Aug) earnings results last night despite slight upside. BB reported a loss, but it was narrower than expected. Revenue fell 4% yr/yr to $168 mln, but that also was better than expected. We think the weakness is being spurred by some cautious comments on the call about the months ahead.
The company is still thought of by many as a mobile phone company but it's really not. You will still find Blackberry phones in the market, but they are not designed or made by Blackberry. Instead, BB decided a few years ago to license out the Blackberry name to third party manufactures. Today, BB is primarily focused on IoT (automotive technology) and cybersecurity. BB also is in the process of selling substantially all of its non-core patents to Catapult for $600 mln.
- The more exciting segment and the growth segment is on the IoT side. Segment revs rose 28% yr/yr to $51 mln, led by QNX design phase revenue. Of note, Volkswagen recently selected BlackBerry QNX for its new VW.OS platform. This follows design wins in recent quarters with BMW, Volvo and a long list of EVs in China.
- The IoT results can be a little tricky. When BB wins a new automotive design, this design revenue is immediately recognized with royalties coming later when the vehicle enters into production. On the positive side, BB has a solid pipeline of potential new designs in the upcoming quarters. However, on the production front, royalty revenue remains below pre-pandemic levels, mainly due to supply chain headwinds which is slowing automotive production.
- BB says the macro environment for autos remains a mixed picture. The Chinese market, where BlackBerry has won a number of designs recently, is bouncing back due to the end of some COVID-related shutdowns and robust stimulus measures. However, there appears to be a short-term contraction in silicon chip supplies in North America and Europe, which is constraining the ability of OEMs to build inventory and meet demand.
- Given the strength of the QNX business, BB says it would normally raise its revenue outlook. However, given the macro headwind, it only reaffirmed FY23 revenue for the IoT business at $200-210 mln.
- The Cybersecurity segment is much larger, but revenue fell 8% yr/yr to $111 mln. This was in-line with internal expectations, with particular strength in core verticals of govt and financial services. However, we think investors are disappointed with the Cyber results, considering that BB posted 6% growth in Q1 (May). BB reiterates flat segment growth in FY23.
The market does not seem very impressed with BB's Q2 report. Granted, it reported slight upside, but the cautious comments on the automotive OEM supply chain issues means that royalty revenue will take some time to hit the P&L. We think that is spooking investors a bit because the IoT side is really the growth engine. We also think the yr/yr decline in cybersecurity revs is a bit of a letdown, especially after posting growth in Q1. Other cyber firms have been posting better results. Overall, we think the jury is still out on BlackBerry. Its automotive tech segment looks promising, but supply chain remains an issue for now. Also, the Cyber business should be doing better.
Thor Industries delivers thunderous JulQ earnings beat; remains upbeat on future RV demand (THO)
Thor Industries (THO +4%) delivered another thunderous quarter, topping earnings estimates by triple-digits for the fifth consecutive period and edging past analysts' revenue expectations in Q4 (Jul). The even bigger news is that the RV manufacturer will begin providing annual guidance, something it had not done since before the pandemic, which even then was largely a commentary on the fiscal year. THO plans to guide for FY23 (Jul) following its Dealer Open House, which ends this week, and in conjunction with 1Q23 (Oct).
It is no secret that THO is amid many headwinds, from rising interest rates and higher fuel costs to increased competition for individuals' time. However, RV component manufacturer LCI Industries (LCII) pointed out last month that gas prices are not climbing as quickly as hotel, airline, and rental car prices, a plus for the RV industry. Also, LCII noted that RV rental prices have barely budged yr/yr in 2022. With RV rental rates holding relatively steady, individuals may be more inclined to opt for a rental, adding potential RV buyers into the mix.
- Meanwhile, despite the macroeconomic challenges, THO has crushed analyst EPS estimates in Q4, growing its bottom line by 25% yr/yr to $5.15. THO's beat is even more notable, considering it was the first time since 4Q20 that analysts called for earnings to contract yr/yr.
- As a result of THO's massive earnings outperformance in Q4, investors are shrugging off a considerable slowdown in revenue growth. THO expanded its top line by just 6.4% yr/yr to $3.82 bln. Although this was good enough to exceed consensus, it highlighted the current economic environment's effect on the highly discretionary RV industry. By comparison, THO grew revs by +34.6%, +42.1%, and +56.0% in Q3, Q2 (Jan), and Q1, respectively.
- Nevertheless, THO remained upbeat on future consumer demand, a recurring tone from the past few quarters. The company remarked that North American consumer demand will remain strong for the foreseeable future. THO sentiment on Europe was also unchanged, noting that a high level of interest in RVs remains despite persistent supply constraints.
- We have heard a similar tone from RV dealer Camping World Holdings (CWH), which commented last month that demand for new and used RVs is on par with some of the best periods it has seen over the previous ten years.
- Rival Winnebago Industries (WGO) was also optimistic in late June, noting it is confident in the long-term health of RV demand. However, WGO followed this up by saying that the short-term will be choppy.
Overall, investors are applauding THO's ability to grow its bottom line given the current headwind-plagued environment, as well as its decision to begin providing annual guidance. Headwinds remain strong but with shares down roughly 30% on the year, giving THO an attractive ~6x forward earnings, a lot of negativity may already be baked in. Meanwhile, THO just approved an additional $450 mln for share repurchases, bringing the total to $700 mln, signaling management's confidence in future cash flows. |
