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Technology Stocks : Semi Equipment Analysis
SOXX 249.78-1.0%Jun 21 4:00 PM EDT

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Market Snapshot

Dow 29609.52 +881.98 (3.07%)
Nasdaq 10858.06 +282.59 (2.67%)
SP 500 3695.31 +109.62 (3.06%)
10-yr Note +36/32 3.65

NYSE Adv 2609 Dec 530 Vol 1.0 bln
Nasdaq Adv 2877 Dec 1329 Vol 4.3 bln

Industry Watch
Strong: Energy, Materials, Utilities, Industrials, Communication Services

Weak: --

Moving the Market
-- Extreme bearish sentiment readings setting up market for rebound from recent weakness

-- Pullback in Treasury yields

-- UK government abandoned part of its fiscal plan, which provided relief for the currency and UK bond market

-- Speculation that weak economic data and concerns about financial instability will result in the Fed taking a softer approach

Closing Summary
03-Oct-22 16:30 ET

Dow +765.38 at 29492.92, Nasdaq +239.82 at 10815.29, S&P +92.81 at 3678.50
[BRIEFING.COM] The equity market had a strong start to the week, month, and fourth quarter. The major averages all closed with sizable gains. The S&P 500 was flirting with the 3,700 level at today's highs, after closing below 3,600 on Friday. There were several catalysts in play fueling the upside momentum, but one of the biggest drivers was offsides positioning.

There has been a lot of hedging with put options for further downside, a pickup in short-selling activity, and certainly some extreme bearish sentiment readings. Today's market, though, went against the grain in all respects, which is why there were outsized gains hot on the heels of an outsized loss last month.

Another support factor was the big drop in Treasury yields. That move came in response to the UK abandoning its plan to cut taxes for higher earners and to weaker-than-expected ISM Manufacturing and Construction Spending data out of the U.S. The 2-yr note yield, which reached 4.22% overnight, fell nine basis points on the day to 4.11%. The 10-yr note yield, which reached 3.80% overnight, fell 14 basis points to 3.65%.

There was also growing speculation among market participants that today's weak economic data and concerns about financial instability will compel the Fed to take a softer angle with its rate-hike approach. That narrative, however, was not supported by the fed funds futures market. There was little change, versus Friday, in the expectation that the terminal fed funds rate will be 4.25-4.50%.

Nonetheless, the stock market can sometimes have a mind of its own and will trade off a predilection in an oversold market that will create the most bang for the buck. October, therefore, started with a bang as new money got put to work in a vast array of beaten-up stocks. Apple (AAPL 142.45, +4.25, +3.1%) was a case in point. It fell 8.1% last week on earnings concerns, but jumped 3.1% today on heavy volume and no good news of note.

Market breadth figures reflected the broad based buying today. Advancers led decliners by a 5-to-1 margin at the NYSE and a greater than 2-to-1 margin at the Nasdaq.

All 11 S&P 500 sectors closed in the green led by energy (+4.8%), today's top performer by a wide margin thanks to rising oil prices. WTI crude oil futures rose 5.0% to $83.50/bbl in response to reports that OPEC+ will be considering a production cut of more than one million barrels per day at Wednesday's meeting.

Meanwhile, the consumer discretionary sector (+0.2%) brought up the rear thanks to a huge loss for Tesla (TSLA 242.40, -22.85, -8.6%) after the company reported lower-than-expected deliveries for the third quarter.

Another piece of corporate news in play today was Credit Suisse (CS 4.01, +0.09, +2.3%) being confronted with concerns about its financial condition. Credit Suisse executive, however, rebutted such concerns, saying the bank has a strong capital base and liquidity position. That view seemed to placate investors for the time being, as the stock rebounded from a 5.6% loss to close the session up 2.3%.

Looking ahead to Tuesday, market participants will receive the August Factory Orders report ( consensus +0.4%; prior -1.0%) and the August JOLTS Job Openings report (prior 11.239 million) at 10:00 a.m. ET.

Reviewing today's economic data:

  • Final IHS Markit Manufacturing PMI September reading came in at 52.0 after the prior reading of 51.8
  • ISM Manufacturing Index for September was 50.9% ( consensus 52.0%) after the prior reading of 52.8%
    • The key takeaway from the report is that it connotes a moderation in manufacturing activity that coincides with rapidly rising interest rates, and it will contribute to slowdown concerns that could, in turn, offer the market reason to think the Fed won't be as aggressive with its rate hikes as it is suggesting it could be.
  • Construction spending fell 0.7% in August ( consensus -0.2%) after a revised 0.6% decline in July (from 0.4%)
    • The key takeaway from the report is the continued downturn in residential spending. That is an offshoot of rising interest rates that have weakened homebuilder sentiment, as higher mortgage rates have also worsened affordability for prospective buyers.
Dow Jones Industrial Average: -18.8% YTD
S&P Midcap 400: -20.2% YTD
S&P 500: -22.8% YTD
Russell 2000: -23.9% YTD
Nasdaq Composite: -30.9% YTD

Energy complex futures settle mixed
03-Oct-22 15:30 ET

Dow +876.58 at 29604.12, Nasdaq +291.89 at 10867.36, S&P +109.29 at 3694.98
[BRIEFING.COM] The major indices trade just off session highs. The S&P 500 is testing, and finding some resistance at, the 3,700 level.

Energy complex futures settled the session in mixed fashion. WTI crude oil futures rose 5.0% to $83.50/bbl while natural gas futures fell 5.0% to $6.48/mmbtu.

Earlier, New York Fed President Williams (FOMC voter) said he sees inflation moving close to the 2.0% goal in the next few years.

Looking ahead to Tuesday, market participants will receive the August Factory Orders report ( consensus +0.4%; prior -1.0%) and the August JOLTS Job Openings report (prior 11.239 million) at 10:00 a.m. ET.

Market continues to climb higher
03-Oct-22 15:00 ET

Dow +881.98 at 29609.52, Nasdaq +282.59 at 10858.06, S&P +109.62 at 3695.31
[BRIEFING.COM] The major averages climbed to fresh session highs in the last half hour.

The S&P 500 consumer discretionary sector remains in last place despite most components showing gains. Homebuilder stocks are particularly strong today, exhibiting some of the biggest gains for the sector. The SPDR Homebuilder ETF (XHB) is up 4.7%.

Separately, the iShares Brazil ETF (EWZ) is up 10% on Bolsonaro's strong showing in the election.

Lam Research, chip names outperforming on Monday in S&P 500
03-Oct-22 14:30 ET

Dow +834.99 at 29562.53, Nasdaq +264.64 at 10840.11, S&P +99.99 at 3685.68
[BRIEFING.COM] The broader market is riding high on Monday afternoon, the benchmark S&P 500 (+2.79%) firmly in second place.

S&P 500 constituents Lam Research (LRCX 395.15, +29.15, +7.96%), Nucor (NUE 114.55, +7.56, +7.07%), and Caesars Entertainment (CZR 34.52, +2.26, +7.01%) pepper the top of the standings. LRCX, along with other chip peers, rebound nicely on Monday in a general fashion, NUE and metals peers move higher alongside a rally in most cyclical names.

Meanwhile, San Diego-based diagnostics firm Illumina (ILMN 186.46, -4.33, -2.27%) is one of today's worst performers, continuing recent weakness after Investor Day comments.

Gold opens week with gains as yields, dollar retreat
03-Oct-22 14:00 ET

Dow +707.01 at 29434.55, Nasdaq +211.42 at 10786.89, S&P +84.13 at 3669.82
[BRIEFING.COM] The major averages have moved mostly sideways in the last half hour, the tech-heavy Nasdaq Composite (+2.00%) still at the "bottom" of the standings, albeit on gains of more than 210 points.

Gold futures settled $30.00 higher (+1.8%) to $1,702.00/oz, pressured by a slip in the dollar and falling yields.

Meanwhile, the U.S. Dollar Index is down about -0.2% to $111.89.

In pursuit of a needed rebound effort
Things are looking relatively good for U.S. assets to begin the week, month, and fourth quarter. The dollar is up, bond prices are up, and the stock market is slated to move higher when the opening bell rings.

Currently, the S&P 500 futures are up 35 points and are trading 1.1% above fair value, the Nasdaq 100 futures are up 73 points and are trading 0.7% above fair value, and the Dow Jones Industrial Average futures are up 319 points and are trading 1.2% above fair value.

These are not huge gains, but that does not make them any less welcome -- certainly not after the month that just concluded. The understandable question on everyone's mind is, will they last?

After all, there is some riptide below the surface that includes a 4.3% decline in Tesla (TSLA) after its Q3 deliveries failed to meet higher expectations, a 4.7% jump in WTI crude oil futures to $83.21/bbl on reports that OPEC+ will be considering a production cut of more than one million barrels per day at this week's meeting, and talk of a confidence crisis swirling around Credit Suisse (CS) that is manifesting itself in rising credit default swap prices.

Not surprisingly, Credit Suisse executives have been quick to downplay such talk, emphasizing that the bank has a strong capital base and liquidity position, according to CNBC, yet it hasn't been lost on market participants that similar defenses were also heard from most investment banks during the financial crisis.

This time could prove to be different (i.e. not systemic and maybe not even an issue), but it's never a good thing when such speculation arises, so it jumps out as another source of uncertainty that will contribute to the heightened volatility in the capital markets.

At the same time, this issue is fostering speculation that the Fed might soften its rate-hike tone a bit, lest it risk contributing further to the instability of the financial markets.

The Fed has yet to satisfy such speculation with its words or actions, so this will be a case of believing it when we see it. Nonetheless, the stock market wants to believe this, and that belief is helping to prop up the markets along with the news that the UK is going to abandon the part of its fiscal stimulus plan that calls for a tax cut for high earners.

The latter news has provided some needed relief for the British pound (GBP/USD +0.6% to 1.1227) and the UK government bond market that has carried over to the Treasury market.

The 2-yr note yield is down eight basis points to 4.12% and the 10-yr note yield is down nine basis points to 3.70%. The decline in Treasury yields is helping to drive the rebound fortunes of the stock market, which is in desperate need of a rebound effort.

-- Patrick J. O'Hare,

Tesla's Q3 delivery miss sparks demand concerns amid a tougher business climate (TSLA)

It appears that Tesla's (TSLA) last ditch effort to close out Q3 with a surge of deliveries came up short as the electric vehicle (EV) maker missed analysts' estimates by a fairly wide margin. Recall that last week, Electrek reported that Elon Musk asked his employees to gear up for a strong push of deliveries over the weekend, lifting expectations that TSLA would post an impressive record setting number that exceeded forecasts. While deliveries of 343,000 vehicles did set a new quarterly record for TSLA, and increased by 42% yr/yr, logistical and transportation challenges prevented the total from meeting the bullish projections.

In its Delivery and Production Report, TSLA stated that it's becoming more difficult to secure vehicle transportation at reasonable costs as its production volumes grow. Indeed, production has soared, jumping by 53% yr/yr in Q3 to 365,000 vehicles, driven by the recent launches of its Berlin and Austin, Texas factories in March and April, respectively. Additionally, the company revamped its Shanghai plant this past summer, boosting its capacity by 30% to 22,000 vehicles per week.

This divergence in production and deliveries, which amounts to about 22,000 vehicles, is creating some angst regarding demand and competition. Typically, the difference between TSLA's production and deliveries is immaterial since it ships everything it can make. In fact, TSLA has been working through a sizable backlog of orders for quite some time. During the Q2 earnings conference call, CFO Zach Kirkhorn stated that the company has "a very long runway with very long lead times" as it pertains to backlog. Therefore, this gap between production and deliveries is catching investors off guard.

TSLA tried to sooth these concerns, stating that there was an increase in cars in transit at quarter end, and that these cars have been ordered. Once these cars are delivered, the difference between production and deliveries should shrink. However, based on the stock action, it's evident that some uneasiness remains, perhaps due to the following reasons.

  • Last week, Reuters reported that TSLA is planning to keep production at its Shanghai plant below full capacity for the remainder of the year. There was no explanation given for the decision to keep production constrained, opening speculation that demand concerns could be creeping in as interest rates skyrocket higher.
  • It has also been reported that lead times for Teslas have dropped significantly recently, indicating that the company has worked through most of its backlog.
  • Macroeconomic headwinds are intensifying, especially in Europe, where soaring energy costs and a battered currency are weighing heavily. In FY21, revenue from geographies other than the U.S. and China accounted for nearly 30% of total revenue. Europe likely makes up the bulk of that figure.
The main takeaway is that cracks may be forming in a demand picture that was viewed as nearly bullet proof just a couple weeks earlier. We don't want to overreact to the report because TSLA still experienced a robust increase in deliveries, and its explanation that transportation challenges are increasing as production ramps up has merit. Macroeconomic and competitive risks are rising, though, and TSLA's shortfall on deliveries is putting those risks front and center today.

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