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Technology Stocks : Semi Equipment Analysis
SOXX 419.17-1.6%Feb 6 4:00 PM EST

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To: Return to Sender who wrote (89214)11/1/2022 12:10:31 AM
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Market Snapshot

Dow 32745.98 -117.85 (-0.36%)
Nasdaq 10934.79 -107.52 (-0.97%)
SP 500 3874.14 -26.99 (-0.69%)
10-yr Note -6/32 4.08

NYSE Adv 1423 Dec 1647 Vol 1.2 bln
Nasdaq Adv 1972 Dec 2634 Vol 4.6 bln

Industry Watch
Strong: Energy

Weak: Communication Services, Information Technology, Real Estate, Consumer Discretionary, Utilities

Moving the Market
-- Due for a pullback after recent gains

-- Profit taking efforts at month end and hesitation ahead of the FOMC decision on Wednesday

-- WSJ article indicating Fed's terminal rate may be higher than expected and stay there longer than expected

-- Weak mega cap stocks

Closing Summary
31-Oct-22 16:30 ET

Dow -128.85 at 32734.98, Nasdaq -114.31 at 10928.00, S&P -29.08 at 3872.05
[BRIEFING.COM] The last trading session in October had a negative disposition. Part of that disposition could be attributed to some normal consolidation activity after a big run recently. The Dow Jones Industrial Average, the Russell 2000, and the S&P Mid Cap 400 all logged double digit gains this month.

The Dow had its best monthly performance since 1976 with a 14.0% gain.

There was likely some hesitation in play today ahead of the November 1-2 FOMC meeting and rate hike decision at 2:00 p.m. ET on Wednesday, which is followed by Fed Chair Powell's press conference at 2:30 p.m. ET. The hesitation was related to Mr. Powell's press conference and whether or not his comments will signal a softer approach from the Fed starting at the December meeting.

Market participants also digested an article from the The Wall Street Journal by Nick Timiraos that highlighted the risk of the Fed's terminal rate ultimately being higher than the market expects and staying there for longer due to excess savings and the resilience of consumer spending.

On top of that, participants received some economic news that played into some stagflation fears. China's official manufacturing PMI for October checked in at 49.2 while its non-manufacturing PMI checked in at 48.7. A reading below 50.0 is indicative of contraction. Separately, the eurozone CPI hit a record-high 10.7% year-over-year in October.

Rising Treasury yields kept pressure on the stock market today. The 2-yr note yield rose seven basis points to 4.49%. The 10-yr note yield settled the session up seven basis points to 4.08%, but hit 4.10% soon after the close of the cash session. This move coincided with the stock market taking a noticeable turn lower.

Mega cap stocks had a weak showing today, leading the market lower. The Vanguard Mega Cap Growth ETF (MGK) was down 1.2% versus a 0.8% loss in the S&P 500 and a 0.4% loss in the Invesco S&P 500 Equal Weight ETF (RSP). Apple (AAPL 153.34, -2.40, -1.5%) suffered a decent loss after Reuters reported COVID measures in China could adversely affect iPhone production volume in November at the Foxconn manufacturing facility.

Broad based selling left ten of the 11 S&P 500 sectors in negative territory. Communication services (-1.7%) and information technology (-1.3%) brought up the rear while energy (+0.6%) sat alone in the green.

It was reported that the Biden administration might be considering a windfall tax on energy producers, although a follow up report from the Associated Press suggested that the tax is not likely to pass Congress. WTI crude oil futures fell 1.6% to $86.50/bbl while natural gas futures rose 10.6% to $6.59/mmbtu.

Arconic (ARNC), BP (BP), Eaton (ETN), Eli Lilly (LLY), Fox Corp. (FOXA), Gartner (IT), Lear (LEA), Marathon Petroleum (MPC), Molson Coors Brewing (TAP), Pfizer (PFE), Phillips 66 (PSX), Simon Properties (SPG), Sysco (SYY), and Uber (UBER) headline the earnings reports ahead of Tuesday's open.

Economic data today was limited to the October Chicago PMI, which came in at 45.2 ( consensus 47.1) following the prior reading of 45.7.

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

  • 9:00 ET: September Job Openings (prior 10.053 mln)
  • 10:00 ET: September Construction Spending ( consensus -0.5%; prior -0.7%) and October ISM Manufacturing Index ( consensus 50.0%; prior 50.9%)
Dow Jones Industrial Average: -9.9% YTD
S&P Midcap 400: -14.4% YTD
S&P 500: -18.8% YTD
Russell 2000: -17.8% YTD
Nasdaq Composite: -29.8% YTD

Market takes a turn lower; 10-yr note yield hits 4.10%
31-Oct-22 15:30 ET

Dow -88.83 at 32775.00, Nasdaq -101.32 at 10940.99, S&P -23.20 at 3877.93
[BRIEFING.COM] The major averages took another leg lower in the last half hour as Treasury yields moved higher. The 10-yr note yield hit 4.10% a short time ago.

After today's close, Avis Budget (CAR), NXP Semi (NXPI), SBA Communications (SBA), and Stryker (SYK) are set to report earnings.

Arconic (ARNC), BP (BP), Eaton (ETN), Eli Lilly (LLY), Fox Corp. (FOXA), Gartner (IT), Lear (LEA), Marathon Petroleum (MPC), Molson Coors Brewing (TAP), Pfizer (PFE), Phillips 66 (PSX), Simon Properties (SPG), Sysco (SYY), and Uber (UBER) headline the earnings reports ahead of Tuesday's open.

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

  • 9:00 ET: September Job Openings (prior 10.053 mln)
  • 10:00 ET: September Construction Spending ( consensus -0.5%; prior -0.7%) and October ISM Manufacturing Index ( consensus 50.0%; prior 50.9%)

Market little changed
31-Oct-22 15:00 ET

Dow -117.85 at 32745.98, Nasdaq -107.52 at 10934.79, S&P -26.99 at 3874.14
[BRIEFING.COM] The three main indices haven't moved up or down much in the last half hour.

Energy futures settled the session in mixed fashion. WTI crude oil futures fell 1.6% to $86.50/bbl while natural gas futures rose 10.6% to $6.59/mmbtu.

The 10-yr Treasury note yield is up six basis points to 4.08% and the 2-yr note yield is up seven basis points to 4.49%.

Newell, Etsy underperform in S&P 500 to open the week
31-Oct-22 14:25 ET

Dow -62.87 at 32800.96, Nasdaq -88.89 at 10953.42, S&P -20.66 at 3880.47
[BRIEFING.COM] The S&P 500 (-0.53%) is in the middle of the standings on Monday afternoon, about 20 points lower.

S&P 500 constituents Newell Brands (NWL 14.08, -0.97, -6.45%), Pool (POOL 305.97, -12.80, -4.02%), and Etsy (ETSY 94.42, -3.49, -3.56%) dot the bottom of the standings. NWL caught a downgrade to Underweight at Barclays this morning, while ETSY slips ahead of Wednesday afternoon's results.

Meanwhile, Pittsburgh-based natural gas producer EQT Corp. (EQT 41.99, +3.31, +8.56%) is among today's best gainers in light of strength in natural gas prices.

Gold loses -1.9% in October, notches seventh straight down month
31-Oct-22 14:00 ET

Dow -85.81 at 32778.02, Nasdaq -91.12 at 10951.19, S&P -22.03 at 3879.10
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (-0.82%) is the worst performing major average.

Gold futures settled $4.10 lower (-0.2%) to $1,640.70/oz as investors continue to hold cautious stance into this week's fed funds rate decision; also applying pressure were modest gains in treasury yields and the dollar. In the end, the yellow metal ended down -0.8% this week, and down about -1.9% on the month.

Meanwhile, the U.S. Dollar Index is higher by about +0.8% to $111.61.

Red-hot October in a cool-down phase
The equity futures market trading lower today isn't causing too much of a stir, not with other reports pointing out that the Dow Jones Industrial Average is on track to have its best month since 1976, and the added recognition that the Dow Jones Transportation Average, Russell 2000, and S&P Midcap 400 are on pace to record double-digit percentage gains in October.

Currently, the S&P 500 futures are down 24 points and are trading 0.6% below fair value, the Nasdaq 100 futures are down 94 points and are trading 0.8% below fair value, and the Dow Jones Industrial Average futures are down 183 points and are trading 0.6% below fair value.

The main gist of things is that this October has been a great month for stocks, catalyzed by a technical rebound from oversold conditions, short-covering activity, better-than-feared earnings, and speculation that the Fed might soon convey an inclination to take a less aggressive rate-hike approach.

We will know soon enough. The Federal Reserve has its Federal Open Market Committee (FOMC) this week. It is a two-day affair, starting tomorrow and concluding Wednesday with a policy announcement at 2:00 p.m. ET and a press conference conducted by Fed Chair Powell at 2:30 p.m. ET.

It is widely expected that the FOMC will announce another 75-basis points increase in the target range for the fed funds rate. The hope, though, is that the directive and/or Fed Chair Powell will signal a strong likelihood of stepping down to no more than a 50-basis point rate hike at the December meeting.

The biggest short-term risk for the market, then, is that the Fed foregoes such a signal, leaving an impression that another 75-basis points rate increase is just as likely in December.

On a related note, a weekend article in The Wall Street Journal by Nick Timiraos highlighted the risk of the Fed's terminal rate being higher than expected and staying there for longer due to excess savings and the resilience in consumer spending.

It was a previous article by Mr. Timiraos that got the market's mind racing about the possibility of the Fed taking things down a notch in December, so the talk of a potentially higher terminal rate has helped cool things down a bit this morning after the stock market's hot streak this month sizzled a little more on Friday following the PCE price data and Apple's (AAPL) big move.

Other cooling points include sub-50 (i.e. contractionary) manufacturing and non-manufacturing PMI readings for October out of China that were weaker than the prior month, reports of increased COVID curbs in China affecting Foxconn's iPhone production facility, a record-high 10.7% year-over-year increase in eurozone CPI in October, and Russia withdrawing from a UN-established grain shipping deal in the Black Sea.

There hasn't been any major earnings announcements this morning, but it will be another busy week of earnings reporting. Another one-third of the S&P 500 will report quarterly results by the close on Friday. It will also be an important week for economic reporting as the September JOLTS report, the October ISM Manufacturing and Non-Manufacturing PMI reports, and the October Employment Situation Report are all on the docket.

There won't be a shortage of trading catalysts, then, to begin the month of November. A red-hot October, however, has one more session to go and it is poised to begin in a cooldown phase.

-- Patrick J. O'Hare,

ON Semiconductor's forward-looking comments spook investors, sending shares sharply lower today (ON)

On Semiconductor (ON -7%) shares are slipping today despite the company posting a wider earnings beat in Q3 than it did last quarter, as well as accelerating revenue growth. However, weighing on shares today was ON's in-line earnings and revenue guidance for Q4, a stark difference from ON's upbeat forecast in Q2. The company pointed to macro uncertainty driving its cautious Q4 stance.

When pressed on what exactly is behind ON's conservative Q4 guidance, the company noted that it is seeing softness on the industrial side of its business, particularly in segments closer to the consumer, such as factory automation. ON went on to note that although revs in its industrial end market grew 5% sequentially, weakness in its nonstrategic end markets of consumer and computing, which both fell by mid-single-digits from Q2, is extending to the aforementioned areas of industrial. Given the current environment, comments like this can overshadow an otherwise solid quarterly earnings report.

Although peer Texas Instruments (TXN) warned of the industrial market beginning to show signs of softness last week, ON shares were unfazed, ticking higher despite TXN's weak Q4 guidance. This may also be a contributing factor in today's pronounced adverse reaction.

  • On the plus side, automotive continues to be a silver lining, boasting 11% sequential growth in Q3. ON expects demand and design activity to remain robust for electric vehicles (EVs), advanced driver assistance systems (ADAS), and energy infrastructure. These results highlight that ON's decision to shift focus aggressively on products within these high-growth, high-margin industries roughly a year and a half ago is paying dividends.
  • Further highlighting this success, ON expanded its adjusted operating margins by 1100 bps yr/yr and 90 bps sequentially to a record 35.4%. This impressive margin growth helped drive adjusted earnings 67% higher yr/yr to $1.45.
  • Although pockets of softness are developing, demand remained above ON's ability to supply in Q3. Despite the elevated demand levels, the company has continued expanding its back-end capacity, allowing it to deliver 38% more automotive sensors in Q3 yr/yr.
Overall, despite the positive standouts from Q3, shares are taking a dive today as forward-looking comments are spooking investors. Also, even within the automotive business, where ON sees resilient demand, the wind could die out within the next few quarters. For example, TXN may have been optimistic about long-term automotive trends, but it conceded that, eventually, the market will roll over, echoing thoughts by Taiwan Semi (TSM) during its Q3 earnings call earlier this month.

Nevertheless, ON shares have held up relatively well thus far this year, dropping by just over 10%. Much of this has to do with the company's shift toward higher-growth industries and its fab-lighter strategy, which positions it to keep growing while keeping expenses down, fueling ongoing margin expansion in the process.

JELD-WEN is winning today after posting surprise beat for Q3 as pricing actions kick in (JELD)

Following three consecutive quarters of missing earnings expectations, door and window manufacturer JELD-WEN (JELD) turned the tide in 3Q22 and topped EPS and revenue estimates. The upside results come as a pleasant surprise as the company contends with a slowing housing market amid a rising interest rate environment. On that note, homebuilders KB Home (KBH) and Lennar (LEN) issued disappointing earnings reports a little more than a month ago, setting expectations even lower for JELD.

  • Although JELD lowered its FY22 adjusted EBITDA guidance to $400-$420 mln from $430-$450 mln, the company reaffirmed its core revenue growth outlook of approximately 10% and total revenue growth outlook of 4-6%.
    • It appears that demand is holding up better than many had anticipated, especially in North America (~65% of total revenue), where revenue jumped by 23% yr/yr to $835.1 mln.
    • During the earnings conference call last quarter, JELD commented that the repair and remodeling industry is showing notable resilience due to healthy home equity levels.
    • Europe was the clear laggard in Q3 as net revenue fell by 5.5% to $304.9 mln. However, excluding the negative impact of foreign exchange, revenue on a core basis increased by 10%.
    • In August, the company announced that its reviewing strategic alternatives for the Australasia business, which accounts for about 10% of its total revenue. The goal of this action is to streamline and simplify its operations. In the quarter, Australasia's net revenue grew by nearly 6% to $155.8 mln.
  • As encouraging as JELD's outlook is, it's important to remember that the company significantly cut its FY22 guidance last quarter. Initially, the company was forecasting total revenue growth of $7-10% and adjusted EBITDA of $520-$560 mln.
  • Despite persistent inflationary pressures, adjusted EBITDA margin expanded by 40 bps to 9.0%. This is mainly due to the aggressive pricing actions that JELD has taken. Combined with the 13% yr/yr increase in revenue to $1.29 bln, the bump in margins pushed EPS higher by 58% to $0.71, easily beating expectations.
The main takeaway is that JELD's pricing actions were a primary force behind its better-than-expected results and guidance. Sales volume/mix continues to taper off (+6%) as homebuilders face softening demand and persistent supply chain disruptions. Overall, though, it was a solid performance for JELD and its results are a positive data point for peer Masonite (DOOR), which is slated to report earnings on November 7.

Howmet Aerospace hits some turbulence with Q3 earnings, echoes caution we heard from Boeing (HWM)

Howmet Aerospace (HWM -3%) is lower today after the aerospace supplier reported less than soaring Q3 results/guidance this morning. Formerly known as Arconic, we like to keep an eye on Howmet to get a window into the health of the aerospace supply chain. Boeing (BA) was notably cautious on its Q3 call last week and these results and especially the Q4 outlook pretty much confirm that supply chain issues remain a problem.

  • First of all, HWM did not miss or anything. EPS and revenue were both in-line. Granted, HWM typically has beaten by only modest amounts in recent quarters, but this in-line result was smaller than usual, which we found notable. Probably the bigger issue was the Q4 guidance. EPS was in-line, but the mid-point of revenue was below consensus.
  • Just as important as the hard numbers, the commentary surrounding the guidance was probably even more worrisome and is likely playing a big role in the stock reaction today. Starting in September, HWM says cash flow was impacted by having to carry higher inventories due to customer schedule rebalances, which the company expects to persist in Q4. We always get worried when customers are not accepting products.
  • The commentary was not all bad. HWM's long term view remains positive as the company expects the commercial aerospace end market to grow at above-trend rates for the next several years. Also, Howmet's defense aerospace market has been struggling, but the company expects that will return to growth starting in mid-2023.
  • Harkening back to Boeing's call last week, the company was more negative than it had been on prior calls. Specifically, BA conceded that its path to recovery is taking a bit longer than expected driven by the challenging macro environment. Also, supply constraints continue to impact production. On the commercial side, BA has been slow to get engines and that is hampering its ability to stabilize its 737 production rate. Howmet's largest segment is jet engine components, so this confirms what Boeing was saying.
Overall, this was a disappointing quarter for Howmet and makes us generally more cautious on aerospace suppliers as we go through earnings season. Given the rebound in travel this summer, we had thought the aerospace industry was going to bounce back more quickly. However, while demand for planes remains strong, the aerospace industry is stuck like so many other industries with supply chain issues that still need to get worked out.

Global Payments' Q3 sales beat is rejected as lowered FY22 guidance receives the attention (GPN)

Global Payments' (GPN -6%) sales beat and in-line earnings in Q3 are proving insufficient to keep shares from trading in the red today. The payment technology company, which delivers software and services to around 4.0 mln merchant sites and over 1,300 financial institutions across roughly 170 countries, lowered both its FY22 reported adjusted revs and reported adjusted EPS guidance as FX headwinds gained strength from Q2. GPN now expects FY22 reported adjusted revs of $7.8-7.9 bln, down from $7.9-8.0 bln, and reported adjusted EPS of $9.32-9.55, down from 9.45-9.67.

Despite the lowered FY22 outlook, GPN's Q3 results still built on a firmer foundation from the prior quarter.

  • Total sales grew 3.8% yr/yr to $2.29 bln, on a 240 bp expansion in adjusted operating margins to a record 45.2%, leading to solid bottom-line growth of 18% to $2.48.
  • GPN's business-to-business (B2B) side of its operations continued to perform nicely, with its Merchant Solutions segment seeing 6.7% sales growth yr/yr to $1.60 bln. The B2B growth is important as it has become one of GPN's core focuses over the past few years.
    • For example, last quarter, GPN announced its plans to acquire EVO Payments at $34 per share, a purchase that would help bolster the company's B2B offerings.
    • Additionally, GPN announced a deal in Q2 to sell Netspend's consumer assets for $1.0 bln, allowing GPN to focus on Netspend's core corporate clients.
  • Within Merchant Solutions, GPN delivered plenty of highlights. For one, its POS software solutions business surged nearly 30% despite lapping over 70% growth in the year-ago period. It is also worth noting that its vertical market solutions unit achieved double-digit growth yet again, led by strength in its School Solutions business, which will play a heightened role in delivering consistent growth if the economy further deteriorates.
  • Alongside solid B2B growth, GPN also achieved a respectable 3.8% jump in sales of its Issuer Solutions segment, boasting transaction and account-on-file revenue growth in the high single digits yr/yr.
  • GPN's commentary on international operations was encouraging. The company noted that the overall macro backdrop remains relatively stable in Asia Pacific, allowing it to continue gaining market share. GPN also noticed sound sales improvement in faster-growth regions, such as Spain, Central Europe, and Southeast Asia.
The main takeaway is that despite decent Q3 numbers, adverse FX impacts reducing GPN's FY22 outlook are taking the steam out of the stock today. The company's results remind us of Fiserv's (FISV) Q3 report from last week, which ran into an intense FX headwind, taking a bite out of its FY22 outlook. Nonetheless, we continue to like GPN's heightened attention on its B2B business, which carries less volatility than the consumer side, especially during an economic downturn.

On a final note, it is worth keeping an eye on GPN competitors Fidelity National Information Services (FIS) and Block (SQ), which both report Q3 earnings on November 3.

Pinterest's unique platform traits help elevate it above its beleaguered social media peers (PINS)

Pinterest (PINS) defied the odds and surprised many by reporting a top and bottom line beat in 3Q22, emerging as a clear winner in the beaten down social media space. Not only did the company surpass quarterly expectations, but it also issued solid guidance for Q4, forecasting mid-single digit revenue growth, slightly beating analysts' expectations. Following the dismal reports from Snap (SNAP) and Meta Platforms (META), it was expected that the same macroeconomic and competitive troubles would hit PINS' results. To be sure, the company was impacted by the steep pullback in advertising spending, particularly in the mid-market and SMB areas, but a few main attributes allowed it to significantly outperform its counterparts.

During the earnings conference call, CEO Bill Ready credited the investments PINS has recently made in enhancing the user experience for the solid quarterly performance. For instance, the company has used machine learning to improve personalization, leading to customized recommendations for users. Importantly, unlike SNAP or META, users typically visit PINS for a specific purpose or to buy something. As an example, a user may visit PINS to discover fall home decoration ideas, which later turns into a purchase for a decoration item. This action-oriented behavior is enticing to an advertiser.

PINS has also added automation and measurement tools to its advertising platform, making its ads more permanent. Mr. Ready noted that approximately 90% of PINS' active advertisers are now using automated bidding.

One caveat to PINS' encouraging report is that the company did receive a one-time benefit from Apple's (AAPL) iOS update in September, which provided a boost to user growth and engagement. However, according to PINS, the impact was quite modest.

Overall, the key metrics underlying PINS' upside report show that its business has stabilized and is moving in the right direction.

  • Although global Monthly Active Users (MAUs) were flat on a yr/yr basis at 445 mln, it did tick higher by about 2 mln from last quarter. Additionally, U.S. and Canada users grew by roughly 3 mln from last quarter. Rewinding to Q2, PINS reported that Global MAUs were flat qtr/qtr, while users in the U.S. and Canada dipped by 2 mln.
    • This quarter marked the first time since 1Q21 that MAUs grew sequentially in the U.S. and Canada.
  • Average Revenue per User (ARPU) was higher by 11% to $1.56 and in the U.S. and Canada, the increase was even more impressive at 15%. This was driven by better-than-expected strength from large U.S. retail advertisers.
The main takeaway is that while PINS isn't immune to macroeconomic volatility and the accompanying downturn in advertising spending, the unique attributes of its platform make it much better suited to mitigate the headwinds than its peers.

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