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Technology Stocks : Semi Equipment Analysis
SOXX 407.10-0.6%Jan 27 4:00 PM EST

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To: Return to Sender who wrote (89151)10/18/2022 9:12:28 PM
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Market Snapshot

Dow 30434.41 +246.56 (0.82%)
Nasdaq 10720.72 +45.07 (0.42%)
SP 500 3706.57 +28.55 (0.78%)
10-yr Note +1/32 4.00

NYSE Adv 2146 Dec 890 Vol 1.0 bln
Nasdaq Adv 2903 Dec 1679 Vol 5.0 bln

Industry Watch
Strong: Materials, Information Technology, Consumer Discretionary, Real Estate

Weak: --

Moving the Market
-- Apple weighing on index performance following news that it lowered iPhone 14 Plus production

-- Better-than-expected earnings news

-- BofA fund manager survey showed cash holdings at their highest level since April 2001

-- Rising Treasury yields pressuring stocks; 10-yr yield back above 4.00%

Closing Summary
18-Oct-22 16:30 ET

Dow +337.98 at 30525.83, Nasdaq +96.60 at 10772.25, S&P +42.03 at 3720.05
[BRIEFING.COM] Today's trade was decidedly positive, building on yesterday's gains. The Dow, Nasdaq, and S&P 500 were up 2.2%, 2.8%, and 2.3%, respectively, at this morning's highs. The major averages took a sharp turn lower after the 10-yr Treasury note yield breached 4.00%. They recovered from session lows as selling eased up in the Treasury market and the S&P 500 found support at the 3,700 level.

The initial upside drive was partially fueled by better-than-expected earnings results from Dow components Goldman Sachs (GS 313.85, +7.14, +2.3%) and Johnson & Johnson (JNJ 166.01, -0.58, -0.4%), yet it was largely driven by a technically-oriented rebound effort that spurred short-covering activity and a fear of missing out on further gains. A BofA fund manager survey showing the largest cash holdings (6.3%) since April 2001 also helped fuel a contrarian trade.

The stock market lost some momentum and hit session lows as the 10-yr note yield reached 4.06% and the 2-yr note yield reached 4.48%. Stocks recovered as selling abated in the Treasury market and the 10-yr note yield ultimately settled at 4.00%. The 2-yr note yield settled at 4.44%.

Equities took a second leg lower this afternoon as Apple (AAPL 143.75, +1.34, +0.9%) plunged following news it has lowered iPhone 14 Plus production, according to The Information. The major indices again recovered as Apple reclaimed some gains.

The market showed impressive resilience today, maintaining a positive position even at session lows.

A broad rally effort left all 11 S&P 500 sectors in positive territory. Industrials (+2.4%) held the top spot thanks to earnings-driven gains in Lockheed Martin (LMT 431.84, +34.53, +8.7%). Meanwhile, communication services (+0.5%) brought up the rear.

The advance-decline line favored advancers by a greater than 2-to-1 margin at the NYSE and roughly the same margin at the Nasdaq.

The PHLX Semiconductor Index (+0.4%) notably lagged the broader market today, held back in part by Intel (INTC 25.87, -0.55, -2.1%), which felt the pinch of a reduced valuation for the IPO of its Mobileye unit.

Energy complex futures made sizable downside moves this session. WTI crude oil futures fell 3.8% to $82.22/bbl and natural gas futures fell 4.3% to $5.73/mmbtu.

Ahead of Wednesday's open, Abbott Labs (ABT), Ally Financial (ALLY), ASML (ASML), Citizens Financial Group (CFG), Procter & Gamble (PG), Prologis (PLD), Travelers (TRV), Winnebago (WGO) headline the earnings reports.

Looking ahead to Wednesday, market participants will receive the following economic data:

  • 7:00 a.m. ET: Weekly MBA Mortgage Applications Index (prior -2.0%)
  • 8:30 a.m. ET: September Housing Starts ( consensus 1.465 million; prior 1.575 million) and September Building Permits ( consensus 1.550 million; prior 1.517 million)
  • 10:30 a.m. ET: Weekly EIA Crude Oil Inventories (prior +9.88 million)
  • 2:00 p.m. ET: October Fed Beige Book
Reviewing today's economic data:

  • Total industrial production increased 0.4% month-over-month in September ( consensus 0.1%) following an upwardly revised 0.1% decline (from -0.2%) in August. The capacity utilization rate increased to 80.3% ( consensus 79.9%) from an upwardly revised 80.1% (from 80.0%) in August.
    • The key takeaway from the report is that the output of consumer goods decreased 0.6% at an annual rate in the third quarter, much slower than the rate of change of 3.1% in the second quarter.
  • October NAHB Housing Market Index came in at 38 ( consensus 44) after a prior reading of 46
Dow Jones Industrial Average: -16.0% YTD
S&P Midcap 400: -17.6% YTD
S&P 500: -22.0% YTD
Russell 2000: -21.8% YTD
Nasdaq Composite: -31.1% YTD

Market stuck in narrow range heading into the close
18-Oct-22 15:30 ET

Dow +233.46 at 30421.31, Nasdaq +39.86 at 10715.51, S&P +26.61 at 3704.63
[BRIEFING.COM] The major averages are confined to a narrow trading range ahead of the close.

Earnings reports after the close are headlined by Netflix (NLFX), United Airlines (UAL), J.B. Hunt Transport (JBHT), and Interactive Brokers (IBKR).

Ahead of Wednesday's open, Abbott Labs (ABT), Ally Financial (ALLY), ASML (ASML), Citizens Financial Group (CFG), Procter & Gamble (PG), Prologis (PLD), Travelers (TRV), Winnebago (WGO) headline the earnings reports.

Looking ahead to Wednesday, market participants will receive the following economic data:

  • 7:00 a.m. ET: Weekly MBA Mortgage Applications Index (prior -2.0%)
  • 8:30 a.m. ET: September Housing Starts ( consensus 1.465 million; prior 1.575 million) and September Building Permits ( consensus 1.550 million; prior 1.517 million)
  • 10:30 a.m. ET: Weekly EIA Crude Oil Inventories (prior +9.88 million)
  • 2:00 p.m. ET: October Fed Beige Book

APPL drags market down
18-Oct-22 15:00 ET

Dow +246.56 at 30434.41, Nasdaq +45.07 at 10720.72, S&P +28.55 at 3706.57
[BRIEFING.COM] The major indices took a sharp turn lower recently keeping instep with Apple (APPL 142.58, +0.14, +0.1%), which fell on news that it lowered iPhone 14 Plus production, according to The Information. The S&P 500 again tested, and found support at, the 3,700 level. Selling pressure also eased up for Apple, boosting the indices off their lows.

The loss in Apple dragged the S&P 500 information technology sector (+0.2%) briefly into negative territory.

Energy complex futures made sizable downside moves this session. WTI crude oil futures fell 3.8% to $82.22/bbl and natural gas futures fell 4.3% to $5.73/mmbtu.

Moderna slips after Morgan Stanley tgt cut, vaccine order cancellation
18-Oct-22 14:30 ET

Dow +416.43 at 30604.28, Nasdaq +134.39 at 10810.04, S&P +52.17 at 3730.19
[BRIEFING.COM] The S&P 500 (+1.42%) stands atop the major averages on Tuesday afternoon, trading at about the middle of today's range.

S&P 500 constituents Carnival (CCL 8.18, +0.91, +12.52%), SolarEdge Technologies (SEDG 209.94, +12.65, +6.41%), and Mosaic (MOS 50.95, +2.70, +5.60%) dot the top of the index. CCL and cruise peers move higher on Tuesday in the shadow of a positive industry note from BofA Securities yesterday, while SEDG and MOS move higher on general strength in the market.

Meanwhile, biotech firm Moderna (MRNA 133.51, -5.74, -4.12%) is today's top laggard, pressured in part due to a target cut out of Morgan Stanley this morning in addition to news out yesterday that Gavi, the vaccine alliance, canceled its remaining pending orders of COVID-19 vaccines.

Gold lower despite relatively soft showing in dollar, yields
18-Oct-22 14:00 ET

Dow +410.85 at 30598.70, Nasdaq +137.46 at 10813.11, S&P +51.48 at 3729.50
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+1.29%) holds the shallowest advance, albeit on gains of more than 137 points.

Gold futures settled $8.20 lower (-0.5%) to $1,655.80/oz, pressured by earlier gains in the dollar and yields, which have since peeled off.

Meanwhile, the U.S. Dollar Index is up about +0.1% to $112.11.

Intel takes another hit on slashed Mobileye valuation with IPO slated to launch next week (INTC)

Intel's (INTC) soon-to-be spun off autonomous driving unit, Mobileye (MBLY), filed an amended IPO prospectus with the SEC, revealing key details about its upcoming offering. The main headline from the new filing is that MBLY is targeting a valuation of about $16 bln, far below expectations and down sharply from the $30 bln figure that INTC had pegged about a month earlier. Further illustrating just how far the IPO market has fallen this year, the projection for MBLY's valuation was at about $50 bln in late 2021. This downward spiral for MBLY has created yet another drag on INTC's stock, which has been pummeled by the severe deterioration in the PC/laptop market and the associated plunge in demand for chips.

The prospects of INTC only doing a little better than breaking even on its $15 bln acquisition of MBLY is a very tough pill to swallow, but the ultra-conservative approach with the valuation makes sense. Given the ice-cold conditions in the IPO market, INTC and its investment bankers -- including Goldman Sachs (GS) and Morgan Stanley (MS) -- want to set a price that will entice as many investors as possible, while limiting the risk of an immediate sell-off following the launch. That's easier said than done in these market conditions. However, the $18-$20 projected price range for the 41.0 mln shares offered should look appealing to many investors due to MBLY's solid growth, rapidly expanding addressable market, and profitability.

  • For the six months ended July 2, 2022, MBLY's revenue increased by 21% to $854 mln as its ADAS platform gains traction with an increasing number of auto manufacturers. As of October 1, 2022, MBLY's products had been installed in about 800 vehicle models while its System-on-Chips had been deployed in over 125 mln vehicles.
  • Last year, MBLY announced over 40 design wins with major auto OEMs. That design win momentum has continued throughout 2022, leading MBLY to believe that its solutions will be embedded into more than an additional 270 mln vehicles by 2030.
  • With corporate growth rates under pressure due to rising interest rates, investors are placing much more emphasis on profits. That shift in priorities shouldn't be a detriment for MBLY's IPO since the business is already profitable on an adjusted basis. In the IPO prospectus, MBLY provided preliminary Q3 results, estimating revenue of $450 mln (+38%), adjusted gross margin of 73-74%, and adjusted operating income of $139-$143 mln (+11% at midpoint).
  • Based on MBLY's annualized revenue of roughly $1.75 bln for FY22, and its projected $16 bln valuation, the P/S pencils out to about 9.1x. Assuming revenue growth of 20% for FY23, MBLY's forward P/S drops to about 7.6x. Although we wouldn't characterize those valuation metrics as dirt cheap, they do seem quite reasonable in light of MBLY's growth potential.
MBLY's IPO is a major event not only for INTC, but it will also have significant implications for the overall IPO market. By establishing that low price range, INTC's investment banking team is hoping that the stock performs well when it opens for trading on October 26. If that scenario unfolds, then other companies sitting on the sidelines waiting to go public will feel more confident about moving forward with their IPOs.

Hasbro heads lower on weak Q3 results; remains upbeat on its long-term financial goals (HAS)

After posting its widest earnings miss and worst quarterly sales decline since 2Q20, Hasbro (HAS -1%) was candid regarding its Q3 numbers, noting that it was unsatisfied. With Q3 now in the rear-view mirror, the toy and board game manufacturer is setting its sights on Q4, reiterating its strategic initiatives first outlined during Investor Day earlier this month, including reducing costs and driving growth through increased focus on games.

  • What happened in Q3? A few factors contributed to HAS's double-digit earnings miss and 14.9% sales decline.
    • One was just poor timing; some products were delayed, pushing sales into Q4 at the expense of Q3. Furthermore, as HAS warned last quarter, since retailers purchased products earlier this year, sales were pulled forward from Q3 to Q2.
    • Another factor stemmed from softening consumer demand. HAS noted that promotions and entertainment field demand have become increasingly vital to lift sales. For example, during Amazon (AMZN) Prime Day, HAS's volume increased mid-single-digits yr/yr.
  • This is why HAS has an unprecedented lineup of entertainment kicking off during Q4. Due to such elevated entertainment levels expected next quarter, HAS estimates flat adjusted operating margin expansion yr/yr. Nevertheless, for FY22, HAS reiterated its goal of 16% margins, a 50 bp improvement yr/yr.
  • Part of why HAS is confident in its margin target for the year is due to its Investor Day cost savings initiatives, which have already begun to bear fruit. For example, in addition to HAS's cost savings plan driving $250-300 mln in annual run-rate savings by 2025, it has already achieved $50 mln in savings for FY22, helping fuel bottom-line growth in Q4.
Overall, HAS underperformed in Q3. However, looking ahead, the company is undergoing shifts to its business to ensure results experienced in Q3 do not repeat in subsequent quarters. We view HAS's longer-term goals as ambitious, especially its target of mid-single-digit annualized revenue growth through 2027.

However, similar to rival Mattel (MAT), HAS boasts excellent brands and IP. With the holiday season right around the corner, we would not discount HAS's ability to deliver on its short and long-term financial goals given its strong brands, even as inflationary pressures dampen discretionary spending. Lastly, if economic conditions worsen, HAS can still license out brands, extracting value from dormant assets, as well as offloading businesses that are not driving the kind of value it is targeting through its long-term plan.

Goldman Sachs rallies on upside earnings and reorganization that emphasizes steadier revenue (GS)

Earnings from the financial sector have generally been better than feared and Goldman Sachs' (GS) upside 3Q22 report fits nicely into that category. Although earnings plummeted by 45% yr/yr, GS still easily surpassed analysts' downbeat EPS and revenue expectations, mainly due to the strong performance of the company's Global Markets segment. Similar to rival Morgan Stanley (MS), GS's fixed income trading business capitalized on rising interest rates and heightened volatility for interest rate and currency related products. In Q3, FICC net revenue jumped by 41% for GS, compared to 33% growth for MS.

GS's quarterly results are only half of the story.

  • The company also announced a major reorganization that combines its investment banking and trading businesses into one segment. Additionally, GS's asset management and wealth management units will combine, while a new division, called Platform Solutions, has been created. Going forward, the new operating segments will be Global Banking & Markets, Asset & Wealth Management, and Platform Solutions.
  • The purpose of this reorganization is to advance GS's strategy to become a more well-rounded financial institution that relies less on its boom-or-bust investment banking and trading businesses. That boom-or-bust nature has been on full display over the past year as GS's investment banking revenue plunged by 57% this quarter, compared to an 88% surge in 3Q21.
    • Volatile market conditions have completely derailed the IPO market, causing GS's equity underwriting revenue to dive by 79% to $241 mln. Conditions aren't much better for deal making as financial advisory revenue declined by 41% to $972 mln.
  • Rather than enduring the peaks and valleys of these businesses from quarter to quarter, GS is looking for more stability and predictability by increasing the amount of fees it generates from asset and wealth management. This strategy is similar to the path that MS has employed, which acquired E*TRADE and Eaton Vance to bolster its Wealth Managment and Investment Management segments.
    • Using stock performance as a gauge, it appears that MS's strategy is paying off. For instance, since the beginning of 2021, MS shares significantly outperformed the broader market, gaining 17% compared to a loss of 1% for the S&P 500.
For GS, its efforts to diversify its revenue have centered on its recently launched consumer banking business called Marcus.

  • In Q3, consumer banking revenue surged by 95% to $744 mln, helping to fuel an 18% revenue increase in the Consumer & Wealth Management segment. Higher credit card balances and higher deposit spreads as a result of rising interest rates bolstered the growth.
  • Despite the strong growth, pre-tax earnings for Consumer & Wealth Management sank by 84% to $38 mln as the unit took a $451 mln hit from provision for credit losses. This indicates that GS is anticipating an increase in net charge-offs due to macroeconomic headwinds, highlighting a primary risk in its plan to expand its consumer business.
While the better-than-expected Q3 results are certainly a positive, GS's reorganization and strategy to emphasis its steadier wealth and asset management businesses is really what has investors excited today.

Johnson & Johnson slips on a reduced FY22 outlook; FY23 and beyond remains mostly upbeat (JNJ)

Johnson & Johnson (JNJ) is inching lower today despite delivering a top and bottom line beat in Q3. The solid headline numbers are being slightly overshadowed by the consumer health and pharmaceutical giant's slightly trimmed FY22 outlook. JNJ tightened its FY22 earnings forecast, expecting $10.02-10.07 from $10.00-10.10 while cutting its FY22 sales forecast for the third straight quarter to $93.0-93.5 bln from $93.3-94.3 bln, which is down from its initial outlook of $97.3-98.3 bln.

However, there were still highlights from Q3, along with many positive developments on the horizon.

  • In Q3, adjusted EPS fell by just 1.9% yr/yr, surpassing analyst expectations. Meanwhile, revs saw positive 1.9% growth to $23.79 bln, more than enough to mark JNJ's second straight sales beat.
  • Although earnings took a spill yr/yr, this was primarily the result of ongoing foreign exchange impacts. As such, it is important to look at operational adjusted earnings growth, which backs out FX headwinds. On an operational basis, adjusted earnings jumped 5.8% yr/yr.
  • Given JNJ's massive global presence, the company also guides on an operational basis, which contains much more favorable numbers than on a reported basis. For example, JNJ increased its FY22 operational adjusted EPS guidance by $0.03 at the midpoint to $10.70-10.75 while reiterating its operational sales forecast of +7% growth yr/yr.
  • Looking beyond FY22, JNJ's tone was mostly upbeat. The company reiterated its FY25 Pharmaceutical sales projection of $60 bln. Furthermore, JNJ anticipates positive procedure trends to help lift its MedTech segment, with the caveat that COVID-19 remains a dynamic situation regionally. Also, for Consumer Health, which is being spun off with a competition date around late next year, JNJ expects to continue benefiting from strategic price hikes and lessening supply chain disruptions, tempered to a degree by persistent inflationary pressures.
We view JNJ's reaffirmed FY25 Pharmaceutical sales target as significant, given that after the company spins off its Consumer Health business, Pharmaceutical sales will represent around 65-70% of JNJ's total sales, up from its current ~55-60%. By comprising such an enormous piece of a post-spin-off JNJ, the company's margin profile will see a solid lift. For instance, the Pharmaceutical unit boasted adjusted margins of 43.8% in Q3, much higher than MedTech's 25.5% and Consumer Health's 24.2%. However, with FX and inflationary headwinds eating at JNJ's Pharmaceutical margins more than its other segments (Pharmaceutical margins contracted by 190 bps yr/yr in Q3 compared to flat growth in MedTech and a 10 bp decline in Consumer Health), it will be critical that these headwinds begin to ease.

Bottom line, inflationary pressures and adverse FX impacts remain a sticky issue for JNJ, which is looking to spin off its Consumer Health division during an inflationary period where consumers may be looking for private label alternatives. Nonetheless, JNJ has proved the strength of its brands through exceptional operational sales and earnings results over the past few quarters. Additionally, management signaled its confidence in the company's cash flows with a solid $5.0 bln stock buyback program last month. Although FX and inflation will remain challenging, we think JNJ will persevere.

Roblox surges on a strong September showing, especially when compared to August (RBLX)

After enduring a sell-the-news reaction following slowing bookings growth in August, Roblox (RBLX +20%) is amid a resurgence today, seeing its shares gain around 20%. The video game company's massive jump today comes from a strong September, which saw daily active users (DAUs) up 23% yr/yr, hours engaged up 16%, and estimated bookings growth between +11-15%.

These metrics may not shine as bright when stacked against numbers posted during the pandemic, which would reach triple digits. However, they illustrate an acceleration compared to August, demonstrating RBLX's ability to capitalize on post-pandemic gaming trends even as inflation pressures spending amongst its DAUs.

  • Although bookings growth of +11-15%, which represents a significant upgrade over the +5-7% posted in August, is a solid positive development, we continue to be impressed by RBLX's DAU growth.
  • By registering another month of 20+% DAU growth yr/yr, RBLX is continuing to carve out a commanding presence in the video game industry. RBLX now boasts nearly 58 mln DAUs, a 38% climb from 1Q21, its first quarter as a public company.
  • Also, even though average bookings per DAU (ABPDAU) continued to trend lower, dropping 7-10% yr/yr, it was not as pronounced as the 14-16% decline seen in August. The sliding ABPDAU also becomes more forgivable, given that RBLX is currently contending with users returning to the classroom. As a reminder, RBLX's most popular cohort is users aged 9-12, with its second-largest cohort being 17-24-year-olds.
Overall, RBLX's solid September metrics are pushing the stock considerably higher today. With RBLX aiming to be a much different type of video game company, leveraging brands to bring in ad revenue, and focusing on the social aspect of gaming, investors like seeing these strategic moves pay off. There are still many headwinds over the near term, especially surrounding ad revenue, as companies look to reduce expenditures to offset widespread cost inflation. However, RBLX's September turnaround shows that August may have been a one-off month, boding well for subsequent months.

Page One

Last Updated: 18-Oct-22 09:00 ET | Archive
Bear market feeling the squeeze
The rally everyone saw unfold yesterday is going to continue to unfold at today's open.

Currently, the S&P 500 futures are up 84 points and are trading 2.3% above fair value, the Nasdaq 100 futures are up 280 points and are trading 2.6% above fair value, and the Dow Jones Industrial Average futures are up 625 points and are trading 2.1% above fair value.

There is an effort to pin this positivity on better-than-expected earnings results from Dow components Goldman Sachs (GS) and Johnson & Johnson (JNJ). That has a little something to do with it, but it is not the main source of thrust.

Although both Dow components exceeded earnings estimates, both Dow components also reported a decline in earnings from the prior year. Moreover, Goldman Sachs CEO David Solomon said on CNBC that there is a good chance that we will see a recession and that it is time to think more cautiously about risk.

So, naturally, what are market participants doing today? They are increasing their exposure to risk by bidding up stock prices.

The thrust of this morning's positive bias isn't so much about the earnings news as it is about technicals and positioning. The same was largely true yesterday, although a nice improvement in the gilt market after UK Finance Minister Hunt announced the cancellation of most of the proposed tax cuts served as a rally catalyst as well.

What we have this morning (and had yesterday) is an appreciation for the market being oversold on a short-term basis and an awareness that it has designs for the time being on turning the corner to a better place.

That is putting the squeeze on short sellers, thereby driving short-covering activity, and prompting a "flat squeeze" whereby sidelined participants are putting cash to work out of fear of missing out on a material rally effort and possible bottom.

A BofA fund manager survey showing cash holdings at their highest level since April 2001 has helped fuel the turnaround effort.

There is very little regard right now for bad news, like Secretary of State Anthony Blinken saying he thinks China will seek to annex Taiwan sooner than prior prognostications have suggested, Hasbro (HAS) missing earnings estimates, or Germany's ZEW Current Situation Survey for October reaching an all-time low.

The market is also tolerating the Bank of England refuting an FT report that it is likely to delay its quantitative tightening plan to improve market functioning. The 10-yr UK gilt is down three basis points to 3.95%.

Similarly, the 10-yr Treasury note yield is looking better. It is down five basis points to 3.97% after reaching 4.04% earlier.

An inability to break convincingly above 4.00% and hold there has created an additional boost for market sentiment, which has clearly needed a boost following the 19.3% decline in the S&P 500 from its high on August 16 to its low last Thursday. That is a huge decline in a short span of time. Alas, the stock market, tired of being dragged down, is now taking a big step forward that is putting the squeeze on anyone short, or flat, the market.

-- Patrick J. O'Hare,

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