| To: Return to Sender who wrote (89096) | 10/5/2022 5:23:32 PM | | From: Return to Sender | | | | Market Snapshot
| Dow | 30352.75 | +34.40 | (0.11%) | | Nasdaq | 11159.91 | -16.35 | (-0.15%) | | SP 500 | 3793.44 | +2.44 | (0.06%) | | 10-yr Note | -31/32 | 3.76 |
|
| | NYSE | Adv 940 | Dec 2132 | Vol 929 mln | | Nasdaq | Adv 1576 | Dec 2778 | Vol 4.0 bln |
Industry Watch
| Strong: Energy, Information Technology, Health Care |
| | Weak: Utilities, Real Estate, Communication Services, Consumer Discretionary |
Moving the Market
-- OPEC+ announcing production cut, sending oil prices surging
-- Selling pressured eased somewhat in Treasury market
-- Resilience to early selling efforts acting as its own catalyst; leadership from mega cap and semiconductor stocks boosting index performance
|
Closing Summary
05-Oct-22 16:30 ET
Dow -42.45 at 30275.90, Nasdaq -27.77 at 11148.49, S&P -7.65 at 3783.35
[BRIEFING.COM] Today's trade started on the defensive, bringing into question the durability of the October rally. The stock market waged a comeback effort that matched up neatly with a lack of follow through selling in the Treasury market after the 2-yr note and 10-yr note tested Friday's settlement levels. The market's ability to turnaround from early lows became its own catalyst with influential upside leadership from mega cap and semiconductor stocks.
The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite ultimately closed just a whisker below the unchanged mark after recovering from losses of 1.8%, 1.4%, and 2.4%, respectively at today's lows. The S&P 500 tested, and found resistance at, the 3,800 level today after setting a new low for 2022 (3586.47) on Friday.
Early action in the stock and Treasury markets reflected participants questioning the Fed rate hike narrative after buying into the idea of a softer approach coming soon. Starting around midmorning, stocks pared earlier losses coinciding with an abatement of selling pressure in the Treasury market. The 2-yr note yield tested the 4.20% level earlier and settled the session up five basis points to 4.13%. The 10-yr note yield tested the 3.80% level earlier and settled the session up 14 basis points to 3.76%.
Mega cap stocks proved to be an important upside driver today. The Vanguard Mega Cap Growth ETF (MGK) closed up 0.01% versus a 0.2% loss in the S&P 500 and a 0.4% loss in the Invesco S&P 500 Equal Weight ETF (RSP).
Another bright spot for the market was semiconductor stocks. The PHLX Semiconductor Index closed with a 0.9% gain. TSMC (TSM 74.48, +1.67, +2.3%) was a winning standout for the group after Morgan Stanley named the stock as a top pick.
Most of the S&P 500 sectors closed with a loss while energy (+2.1%) led the outperformers. Utilities (-2.3%) and real estate (-1.9%) brought up the rear.
Energy was boosted by WTI crude oil futures rising 1.5% to $87.64/bbl after OPEC+ agreed to a 2 million barrel per day production cut starting in November.
Looking ahead to Wednesday, market participants will receive the weekly Initial Claims (Briefing.com consensus 203,000; prior 193,000) and Continuing Claims (prior 1.347 mln) at 8:30 a.m. ET. The weekly natural gas inventories (prior +103 bcf) will be out at 10:30 a.m. ET.
Reviewing today's economic data:
- Weekly MBA Mortgage Application Index showed a 14.2% decline compared to last week's 3.7% decline
- September ADP Employment Change totaled 208,000 (Briefing.com consensus 198,000) after the prior revised total of 185,000 (from 132,000)
- U.S. trade deficit narrowed to $67.4 billion in August (Briefing.com consensus -$67.9 billion) from an upwardly revised -$70.5 billion (from -$70.6 billion) in July
- The key takeaway from the report is that it does point to some softening in global economic activity as both imports and exports were less than they were in July.
- September IHS Markit Services PMI final reading came in at 49.3 following the prior 49.2 reading.
- September ISM Non-Manufacturing Index fell to 56.7% (Briefing.com consensus 56.0%) from 56.9% in August
- The key takeaway from the report is that business activity for the non-manufacturing sector held pretty steady in September and was stronger than expected. While a slightly lower reading versus August connotes some slowing, the slowdown for the largest sector of the economy isn't significant enough to fuel a belief that the Fed is about to pivot soon with its monetary policy.
Dow Jones Industrial Average: -16.7% YTD
S&P Midcap 400: -17.5% YTD
S&P 500: -20.6% YTD
Russell 2000: -21.5% YTD
Nasdaq Composite: -28.7% YTD
Market comfortably in the green
05-Oct-22 15:30 ET
Dow +99.60 at 30417.95, Nasdaq +12.89 at 11189.15, S&P +9.62 at 3800.62
[BRIEFING.COM] The market made a notable comeback from morning lows. The three main indices are comfortably in positive territory heading into the close.
Many stocks pared earlier losses coinciding with an abatement of selling pressure in the Treasury market. The 2-yr and 10-yr note tested Friday's settlement levels and found renewed buying interest there. The 2-yr note yield tested 4.20% earlier but settled at 4.13% and the 10-yr note yield tested 3.80% earlier but settled at 3.76%.
Energy complex futures settled the session higher. WTI crude oil futures rose 1.5% to $87.64/bbl and natural gas futures rose 1.5% to $6.93/mmbtu.
Dow and S&P 500 flirt with positive territory
05-Oct-22 15:00 ET
Dow +34.40 at 30352.75, Nasdaq -16.35 at 11159.91, S&P +2.44 at 3793.44
[BRIEFING.COM] The major averages inched back towards session highs in the last half hour. The Dow Jones Industrial Average and S&P 500 flirt with positive territory.
The S&P 500 health care (+0.5%) and information technology (+0.4%) sectors joined energy (+2.3%) in positive territory.
Small and mid cap stocks are lagging their larger peers. The Russell 2000 (-0.9%) and S&P Mid Cap 400 (-0.2%%) show the steepest losses for the major ndices.
Schlumberger, oil names outperform in S&P 500
05-Oct-22 14:25 ET
Dow -19.04 at 30299.31, Nasdaq -58.47 at 11117.79, S&P -7.22 at 3783.78
[BRIEFING.COM] The S&P 500 (-0.19%) is probing session highs in recent trading, still firmly in second place among the major averages.
S&P 500 constituents Enphase Energy (ENPH 254.77, -33.48, -11.61%), Carnival (CCL 7.27, -0.49, -6.31%), and General Motors (GM 34.49, -1.31, -3.66%) dot the bottom of the index. Solar stocks fall hard on Wednesday, though no specific catalyst has yet appeared, while rallies in names like CCL and GM cooled off at midweek.
Meanwhile, Texas-based oil&gas name Schlumberger (SLB 41.39, +2.27, +5.80%) is today's top performer amid gains in crude oil futures.
Gold lower, dollar and yields higher in familiar story
05-Oct-22 14:00 ET
Dow -73.36 at 30244.99, Nasdaq -69.53 at 11106.73, S&P -13.99 at 3777.01
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (-0.62%) sits at the bottom of the standings.
Gold futures settled $9.70 lower (-0.6%) to $1,720.80/oz, pressured by a familiar foe -- rising yields and a stronger greenback.
Meanwhile, the U.S. Dollar Index is up about +1.1% to $111.30.
Lamb Weston's gains are no small potatoes as price increases drive strong earnings growth (LW)
Potato producer Lamb Weston (LW) has not been sheepish about acknowledging the challenging macro environment that's in front of it, but the company continues to serve up solid results despite the inflationary and supply chain related headwinds.
The company, which provides fries to McDonald's (MCD), and to many other major restaurant chains and retailers, easily surpassed 1Q23 earnings expectations as EPS surged by 315% yr/yr to $0.75. Bolstered by its strong performance, LW said that it's now tracking towards the high end of its FY23 guidance for EPS of $2.45-$2.85, and revenue of $4.70-$4.80 bln.
At the core of LW's earnings beat and bullish outlook is the company's effective pricing strategy. Over the past fifteen months, LW has increased product pricing multiple times in its Foodservice and Retail segments to counter rising input and transportation costs. Additionally, in the Global Segment (large quick-serve and full-service restaurant chains), LW benefited from price escalators that are included in multi-year contracts, as well as from some price adjustments made outside of those contracts.
Overall, price/mix increased by 19%, fueling a 900 bps surge in gross margin to over 24%. While LW capitalized on previous price hikes in Q1, the company also implemented new pricing actions during the quarter. Consequently, the company expects the pricing tailwinds to gradually build throughout 1H23.
Outside of the positive developments regarding pricing, the news is much more mixed.
- Similar to other packaged food companies, like General Mills (GIS) and Conagra (CAG) -- which reports earnings before the open tomorrow morning -- LW continues to experience declining volumes. Following a 1% drop last quarter, volume declined by 5% in Q1, due to softer casual dining and full-service restaurant dining in the U.S. Persistent supply chain disruptions compounded the issue.
- During the earnings conference call, LW commented that it's seeing a trade-down effect take place in the restaurant industry as a result of high inflation. Specifically, quick-serve restaurants, like MCD, are benefiting at the expense of pricier casual dining and full-service restaurants.
- Meanwhile, in the Retail segment, the company is unable to fully meet demand because its production is constrained. Supply chain issues, including commodity and labor shortages, are limiting its volume.
- LW doesn't anticipate that the macro environment will improve much in 2023, causing demand trends to remain uneven and volatile. However, the company noted that it saw similar restaurant traffic trends during the financial crisis of 2008-2009, and that its business remained resilient during that turbulent time. According to LW, consumers are currently ordering fries at restaurants at a rate above pre-pandemic levels, illustrating this resiliency in demand.
Buoyed by its impressive earnings growth, LW has exhibited remarkable relative strength this year, gaining 30% compared to a loss of 21% for the S&P 500. With additional pricing actions underway, the company is poised to deliver solid bottom-line growth in the quarters ahead, which may translate into further outperformance for the stock.
SMART Global is smarting as softness in Brazil and weakness in LED unit tarnish results (SGH)
SMART Global (SGH), a semiconductor provider that's transforming itself into a more diversified technology company, reported mixed 4Q22 results that included a 6.4% yr/yr drop in revenue. This was the company's first quarterly revenue decline since the pandemic-affected quarter of 2Q20. Based on SGH's downside EPS and revenue guidance (at the midpoint) for 1Q23, it doesn't appear that the company is expecting a major turnaround soon.
SGH is primarily known as a semiconductor company with significant exposure to Brazil. In fact, SGH is Brazil's largest in-country manufacturer of memory products, with the country representing 30% of the company's total sales in FY21. In recent years, though, SGH has reshaped its business through acquisitions in order to diversify its product and geographic mix. Two of the most transformative acquisitions include SGH's addition of Penguin Computing in 2018, and its purchase of Cree's LED business in 2021. While these acquisitions have lessened SGH's exposure to Brazil, which accounted for 44% of revenue in FY19, the overall performance of the new businesses has been mixed.
- The LED Solutions segment in particular continues to weigh SGH down. In Q4, revenue plunged by 32% to $83.1 mln as COVID-related restrictions in China compounded preexisting supply chain constraints. Making matters worse, demand is also softening in the U.S. and Europe. Consequently, SGH expects LED revenue to decrease sequentially in Q1.
- In the core Memory Solutions segment (~48% of Q4 revenue), the story isn't much better. During last quarter's earnings conference call, CEO Mark Adams warned that consumer demand for smartphones and PCs in Brazil was weakening, and that the weakness would persist into Q4. That prediction came to fruition as revenue for the segment fell by 15% yr/yr to $209.8 mln.
- There were some pockets of strength, particularly for specialty memory and flash memory products from enterprise customers in the networking, telecom, and storage end markets.
- By far, the standout was SGH's Intelligent Platform Solutions (IPS) segment, which consists of Penguin Computing and Penguin Edge. Revenue jumped by 48% to $144.7 mln, fueled by new project rollouts and strong growth of 59% for services. IPS specializes in providing high-performance computing (HPC), artificial intelligence (AI), and machine learning (ML) technologies to hyper-scale, financial, and government customers.
- Once these systems are implemented, SGH provides high-margin services, including system management, DevOps, and HPC/AI optimization. These service agreements with Penguin are typically longer-term and provide recurring revenue streams.
- SGH further bolstered its IPS segment with its $225 mln acquisition of Stratus in late June. Stratus, which develops Edge and cloud offerings for large scale enterprises in the data center, is expected to add more than $150 mln in annual revenue, while improving SGH's gross margin profile and adding to non-GAAP EPS.
Softening consumer spending in Brazil continues to weigh on SGH's memory business. It's strategy to lessen its exposure to Brazil should be working in its favor, but the avenue it took to diversify its business is looking questionable. Specifically, SGH's decision to buy the struggling LED unit from Cree is coming back to haunt the company. Unless business conditions improve in Brazil and for the LED business, the strength in the IPS segment will continue to get lost in the shuffle.
Helen of Troy's second cut to its FY23 outlook spurs a sell-the-news reaction (HELE)
By trimming its FY23 guidance for the second-straight quarter, Helen of Troy (HELE -1%) showed its Achilles heel, spurring a sell-off despite the houseware and beauty product supplier posting top and bottom line upside in Q2 (Aug). The problem facing HELE was the same that led to a guidance cut last quarter: softening consumer demand.
Rising inflation and interest rates dampened consumer sentiment in Q2, adversely affecting HELE's premium segments. Meanwhile, major retail partners continued adjusting their inventories. HELE is not seeing this issue fade away soon, forcing it to slash its FY23 outlook again. The company now expects FY23 EPS of $9.00-9.40 and revs of $2.00-2.05 bln, well below consensus and HELE's initial earnings and sales projections of $12.73-13.03 and $2.38-2.42 bln, respectively.
HELE also announced an official restructuring plan, dubbed Project Pegasus, which it estimates will produce annualized savings of $75-85 mln. Project Pegasus is an extension of HELE's global efficiency initiatives it announced last quarter, which included further enhancements to its distribution network, as well as utilizing automation and employing IT upgrades to increase labor efficiency. HELE expects its efforts to result in a stronger platform for operating margin expansion. However, with adjusted operating margins contracting 320 bps yr/yr in Q2 and HELE expecting a slightly worse decline in FY23 than its forecast last quarter, its restructuring plan may have come later than it should have. Still, we like seeing HELE take the necessary steps to return to margin expansion, which is no small feat in the current inflationary-plagued environment.
- This inflationary environment continued to cause headaches for HELE in Q2. Outside of a few good numbers, such as adjusted EPS sliding by less than analysts expected and revs still growing 9.7% yr/yr to $521.4 mln, many other results looked rather dim.
- Beauty sales falling 15.4% yr/yr to $100.3 mln was a bit of a surprise, especially given the strength of the beauty category lately, illustrated by excellent results from Sephora (LVMH), Ulta Beauty (ULTA), and Coty (COTY). HELE's weak Beauty sales are likely explained by the fact that more discretionary beauty appliances comprise a greater percentage of its Beauty revenue.
- HELE's other segments, Home & Outdoor and Health & Wellness, both saw positive sales growth in Q2, helping fuel the company's overall revenue expansion. However, these bright spots are tempered by operating margins falling in both segments.
The main takeaway is that HELE continues to be a victim of an ongoing slowdown in discretionary spending. Nevertheless, HELE's brands remain strong, and its acquisitions like Osprey, which is on track to achieve the company's sales forecast of $180-185 for FY23, and Curlsmith give it an even stronger foundation. Like we heard from competitor Hamilton Beach Brands (HBB), certain trends, such as eating-at-home and heightened focus on home upgrades, should provide long-lasting tailwinds. HELE is highlighting the benefits these tailwinds are already bringing, as some of its brands' sell-through remains well ahead of pre-pandemic levels.
Schnitzer Steel heads lower on weak guidance; hurt by a sharp decline in recycled metal prices
Schnitzer Steel (SCHN -7%) is heading lower today after providing some pretty disappointing guidance for Q4 (Aug). The company expects adjusted EPS of just $0.42-0.47. There is limited analyst coverage on SCHN, so we do not put a lot stock in the consensus. However, this guidance came in well below analyst expectations so we thought it was pretty notable.
- Ever since Nucor's (NUE) sharp downside guidance last month, we have been bracing for some weak guidance from other steelmakers. In a bit of a surprise, Steel Dynamics (STLD) guided Q3 EPS above consensus and the mid-point of US Steel's (X) Q3 EPS guidance was slightly above consensus. And now SCHN came in well below.
- In fairness, Schnitzer is a bit different than most other steel producers. For one thing, it is based in Portland, OR while most steelmakers are in the Midwest, near the automotive manufacturers. The other thing is that SCHN is more of a metals recycler than a steel producer although it does make some steel. It primarily buys scrap from auto salvage yards, industrial manufacturers, and metals brokers. It then processes the scrap and sells it to other steelmakers so they can make steel or SCHN uses it in its own steelmaking operations.
- As a scrap recycler, the accounting is a bit different than other steelmakers. Most notably, SCHN was hurt by a sharp decline in selling prices for recycled metals in AugQ, which is expected to lead to both a compression in metal spreads and an adverse impact from average inventory accounting. But lower scrap prices are good for steelmakers as it is a key input, especially for mini-mills like NUE and STLD.
Overall, this was some rough guidance from SCHN, but we think investors are not overly surprised given that scrap prices have been declining. Also, SCHN's stock price has been weak lately. That seems to be why the stock is not down more. And interestingly, SCHN's struggles are actually somewhat good news for the other steel producers because prices on a key input remain depressed. Finally, to SCHN's credit, it has been pretty active with share buybacks, including repurchasing 500K shares in Q4, which brings total FY22 repurchases to 3.5% of shares outstanding. So management does see some value down here.
Blackbaud solidly in the green today after Clearlake Capital discloses large ownership stake (BLKB)
Blackbaud (BLKB), a provider of cloud-based products for educational institutions and non-profit organizations, is launching higher after Clearlake Capital Group disclosed an 18.4% ownership stake in the company in an SEC filing. According to the filing, Clearlake initially established a position in BLKB solely for investment purposes. However, the firm's motivation has recently changed, and it's now in communication with BLKB's executives and board members regarding the evaluation of strategic alternatives. It is this detail that has lit a fire under the stock, sparking hopes that BLKB will gauge the interest level from possible suitors who may consider acquiring the company.
A review of strategic alternatives could also mean that Clearlake pushes BLKB to initiate other plans, such as cutting costs, divesting assets, restructuring, or buying back more stock. Whatever path is chosen, the end goal is to generate stronger returns for shareholders, which is music to investors' ears after the stock has crated by nearly 45% this year.
- Looking at BLKB's recent financial results, it's evident that the company isn't firing on all cylinders. While the company generated mid-teens revenue growth during the past two quarters, it greatly benefited from favorable yr/yr comparisons.
- Specifically, revenue declined by 2.0% in 1Q21, and increased by a paltry 3.3% in 2Q21. BLKB's mediocre performance is best illustrated by its average quarterly growth rate of just 6% over the past five years.
- Furthermore, BLKB cut its FY22 EPS and adjusted free cash flow guidance last quarter, partly due to soft bookings for its ESG-focused EVERFI business, which it acquired this past January for $750 mln. Foreign exchange headwinds and higher interest payments due to rising rates were also to blame.
- Interestingly, Clearlake's disclosure comes just a couple weeks after BLKB extended CEO Mike Gianoni's employment contract for three more years. Gianoni, who has been with the company since January 2014, has set a goal for BLKB to reach the Rule of 40 within the next three years. The Rule of 40 is a principle that a SaaS company's combined revenue growth rate and its profit margin should exceed 40%. In Q2, the company achieved 32% on the Rule of 40 on a constant currency basis, pacing above the midpoint of its full year guidance of roughly 30%.
- If Clearlake and BLKB agree that the most efficient and effective way to boost shareholder value is through selling the company, then its progress on the Rule of 40 could become a selling point. Additionally, the resiliency of its business model is an attractive attribute, especially in light of current macroeconomic conditions. During BLKB's Q2 earnings conference call, Gianoni highlighted this quality, noting that revenue still grew through the financial crisis (2008-2010), even though its recurring revenue was a much smaller percentage of total revenue compared to now. Today, approximately 95% of BLKB's revenue is recurring.
- With a reasonable 1-year forward P/E of 16x, BLKB could look like a good bargain to a larger software company. The company lists Salesforce (CRM), Oracle (ORCL), and Microsoft (MSFT), as companies it competes with in certain areas of its business.
Clearlake Capital has amassed a very significant stake in BLKB, providing it with plenty of influence. How that influence ultimately plays out remains to be seen, but investors seem to be betting that a for sale sign is in the company's near future.
|
| | Semi Equipment Analysis | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last ReadRead Replies (1) |
|
| To: Return to Sender who wrote (89097) | 10/6/2022 3:10:22 PM | | From: Robert O | | | | re: That's 2 days in a row of 80% Up Volume on the NYSE. Is this the end of our bear market?
It feels like that might have been it (even if a near retest but not below recent bottom occurs). But my question is when you have any down time, understanding this is not an exact science, do you feel 2 days in a row of 80% Up Volume on the NYSE is the same weight as capitulation and big 90% up day on high volume that you look for to blow the horn?
Or is this signal only say 70% of the signal we all prefer- monster capitulation day then 90%+ reversal day. This cycle I pledged mentally to put cash to work on the big signal and let it run no matter the various scares/headfakes, etc. Often in past once cash is back to work will sell with decent sized % gains off bottom but find it was far too soon as so many participants lag in jumping on the FOMO angst that occurs bit by bit.
For now, I've already started legging in over last 2 days just in case as had so much in cash. I’m just trying to get a feel for your sense of probability here that this was it ...
RO |
| | Semi Equipment Analysis | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last ReadRead Replies (1) |
|
| To: Return to Sender who wrote (89099) | 10/6/2022 6:23:33 PM | | From: Return to Sender | | | | BPNDX Rose 6 to 49 PnF Buy Signals - [ALGN AMD COST DXCM GOOGL LULU added]
| Mon | Tues | Wed | Thur | | ADP | ADP | ABNB | ABNB | | AMAT | AMAT | ADP | ADP | | BIIB | ASML | ADSK | ADSK | | CPRT | BIIB | AMAT | ALGN | | DDOG | BKNG | ASML | AMAT | | FAST | CDNS | BIIB | AMD | | GILD | CHTR | BKNG | ASML | | KDP | CPRT | CDNS | BIIB | | KLAC | CRWD | CHTR | BKNG | | MELI | CTAS | CPRT | CDNS | | ORLY | DDOG | CRWD | CHTR | | REGN | FAST | CTAS | COST | | SIRI | GILD | DDOG | CPRT | | TMUS | IDXX | FAST | CRWD | | VRSN | ISRG | GILD | CTAS | | VRTX | KDP | IDXX | DDOG | | WDAY | KLAC | ILMN | DXCM |
| MCHP | INTU | FAST |
| MELI | ISRG | GILD |
| MRNA | KDP | GOOGL |
| NTES | KLAC | IDXX |
| NXPI | MCHP | ILMN |
| OKTA | MELI | INTU |
| ORLY | MRNA | ISRG |
| PCAR | MRVL | KDP |
| PDD | NTES | KLAC |
| PYPL | NXPI | LULU |
| REGN | OKTA | MCHP |
| ROST | ORLY | MELI |
| SBUX | PCAR | MRNA |
| SIRI | PDD | MRVL |
| TMUS | PYPL | NTES |
| VRSN | REGN | NXPI |
| VRTX | ROST | OKTA |
| WDAY | SBUX | ORLY |
| ZM | SIRI | PCAR |
| ZS | SPLK | PDD |
|
| TMUS | PYPL |
|
| VRSN | REGN |
|
| VRTX | ROST |
|
| WDAY | SBUX |
|
| ZM | SIRI |
|
| ZS | SPLK |
|
|
| TMUS |
|
|
| VRSN |
|
|
| VRTX |
|
|
| WDAY |
|
|
| ZM |
|
|
| ZS | |
| | Semi Equipment Analysis | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last ReadRead Replies (1) |
|
| To: Return to Sender who wrote (89102) | 10/6/2022 6:31:28 PM | | From: Return to Sender | | | |
Market Snapshot
briefing.com
| Dow | 29928.31 | -347.59 | (-1.15%) | | Nasdaq | 11082.36 | -66.13 | (-0.59%) | | SP 500 | 3747.48 | -35.87 | (-0.95%) | | 10-yr Note | -6/32 | 3.83 |
|
| | NYSE | Adv 933 | Dec 2055 | Vol 946 mln | | Nasdaq | Adv 1713 | Dec 2521 | Vol 4.3 bln |
Industry Watch
| Strong: Energy |
| | Weak: Utilities, Real Estate, Financials, Health Care |
Moving the Market
-- Questioning the Fed rate hike narrative after several Fed officials made comments recently
-- Treasury yields climbing past Friday's settlement level
-- Hesitation ahead of the September Employment Situation Report tomorrow
|
Closing Summary
06-Oct-22 16:30 ET
Dow -346.93 at 29928.97, Nasdaq -75.33 at 11073.16, S&P -38.76 at 3744.59
[BRIEFING.COM] The stock market had a rough showing today while it continued to deal with concerns that it got carried away with expectations of a Fed policy pivot soon and amid some hesitancy in front of the September Employment Report on Friday.
The major averages were influenced by the behavior of the Treasury market today. The 2-yr note yield, which saw 4.14% earlier, traded above Friday's close and settled at 4.23%, up ten basis points for the day. The 10-yr note yield, stood at 3.74% overnight, but also traded above Friday's close and settled at 3.83%, up seven basis points for the day.
As Treasury yields moved higher, the major indices moved lower and struggled to mount a comeback effort today. They ultimately finished near their worst levels of the session.
The US Dollar Index jumped 1.0% to 112.18, acting as an additional headwind for the equity market.
There was also some hawkish Fed speak for participants to digest. Atlanta Fed President Bostic (2024 FOMC voter) said the inflation fight is still in the early days and Minneapolis Fed President Kashkari (2023 FOMC voter) said he is not comfortable pausing until there is evidence of inflation cooling.
In addition, there was heightened geopolitical uncertainty after OPEC+ agreed to cut production by 2 million barrels per day starting in November, a move that drew sharp criticism from the White House. WTI crude oil futures rose 1.0% today to $88.51/bbl.
Today's stock market losses were broad based but somewhat modest in scope relative to recent gains. The major indices fell between 0.6% and 1.1%.
The rising price of oil boosted the S&P 500 energy sector (+1.8%), which was the only sector to close with a gain. Meanwhile, utilities (-3.3%) and real estate (-3.2%) fell to the bottom of the pack.
Market breadth showed decliners outpacing advancers by a greater than 2-to-1 margin at the NYSE and a 3-to-2 margin at the Nasdaq.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: September Nonfarm Payrolls (Briefing.com consensus 250,000; prior 315,000), Nonfarm Private Payrolls (Briefing.com consensus 275,000; prior 308,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), Unemployment Rate (Briefing.com consensus 3.7%; prior 3.7%), and Average Workweek (Briefing.com consensus 34.5; prior 34.5)
- 10:00 ET: August Wholesale Inventories (prior 0.6%)
- 15:00 ET: August Consumer Credit (prior $23.30 bln)
Reviewing today's economic data:
- Initial jobless claims for the week ending October 1 increased by 29,000 to 219,000 (Briefing.com consensus 203,000) while continuing jobless claims for the week ending September 24 increased by 15,000 to 1.361 million.
- The key takeaway from the report is that initial claims -- a leading indicator -- have a lot more scope for deterioration before the Fed can be convinced that its rate hikes have induced a sufficient softening in the labor market to ease wage-based inflation pressures.
- Weekly EIA natural gas inventories showed a build of 129 bcf versus a build of 103 bcf last week
Dow Jones Industrial Average: -17.6% YTD
S&P Midcap 400: -18.1% YTD
S&P 500: -21.4% YTD
Russell 2000: -22.0% YTD
Nasdaq Composite: -29.2% YTD
Market lifts off lows ahead of close
06-Oct-22 15:30 ET
Dow -303.12 at 29972.78, Nasdaq -50.25 at 11098.24, S&P -30.84 at 3752.51
[BRIEFING.COM] The major indices trade in a narrow range somewhat off session lows.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: September Nonfarm Payrolls (Briefing.com consensus 250,000; prior 315,000), Nonfarm Private Payrolls (Briefing.com consensus 275,000; prior 308,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), Unemployment Rate (Briefing.com consensus 3.7%; prior 3.7%), and Average Workweek (Briefing.com consensus 34.5; prior 34.5)
- 10:00 ET: August Wholesale Inventories (prior 0.6%)
- 15:00 ET: August Consumer Credit (prior $23.30 bln)
Market makes new lows as 2-yr note yield climbs
06-Oct-22 15:00 ET
Dow -347.59 at 29928.31, Nasdaq -66.13 at 11082.36, S&P -35.87 at 3747.48
[BRIEFING.COM] The major averages fell to fresh session lows as selling picked up for the 2-yr Treasury note.
The 2-yr note yield plateaued around the 4.19% level for a few hours before climbing to 4.23% in the last half hour. The 10-yr note yield is up six basis points to 3.82%.
Energy complex futures rose this session. WTI crude oil futures rose 1.0% to $88.51/bbl; natural gas futures rose 0.1% to $6.94/mmbtu; unleaded gasoline futures rose 0.8% to $2.68/gal.
Republic Services underperforms on cautious sell side note, CF Ind. gains alongside other fert peers
06-Oct-22 14:25 ET
Dow -275.85 at 30000.05, Nasdaq -34.88 at 11113.61, S&P -26.64 at 3756.71
[BRIEFING.COM] The broader market is lower to varying degrees at this point on Thursday, the benchmark S&P 500 (-0.70%) still in second place.
S&P 500 constituents Republic Services (RSG 133.96, -7.21, -5.11%), SolarEdge Technologies (SEDG 222.10, -12.14, -5.18%), and Generac (GNRC 170.61, -8.07, -4.52%) pepper the bottom of the index. RSG and waste peers underperform after a cautious Deutsche Bank call earlier in the day, solar and renewable energy names are lower in view of gains on crude oil/traditional energy plays, while GNRC caught an intraday downgrade to Neutral out of BofA Securities citing possible order deceleration risks.
Meanwhile, material name CF Industries (CF 106.11, +3.56, +3.47%) is outperforming on Thursday; a possible catalyst is word of shipment disruptions on the Mississippi River, which is seeing water levels decline amid a drought in the region, thus shrinking supply.
Gold unchanged with eyes fixed on tomorrow's jobs data
06-Oct-22 14:00 ET
Dow -202.26 at 30073.64, Nasdaq -0.19 at 11148.30, S&P -16.08 at 3767.27
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (flat) is near unchanged levels; Nasdaq was up +0.73% at today's highs, then down -0.87% at the lows.
Gold futures settled unchanged at $1,720.80/oz with eyes more focused on tomorrow morning's jobs data.
Peloton pedals higher following report of another round of layoffs, but future remains murky (PTON)
Peloton's (PTON) glory days may be far behind it, but the connected fitness company is still searching for answers as it attempts to execute a dramatic turnaround. The company's latest bid to resuscitate its ailing business includes another round of layoffs. According to the Wall Street Journal, PTON is cutting 12% of its workforce, or about 500 positions, with many of the reductions affecting the marketing department. Unfortunately, job cuts have become commonplace at PTON this year. In total, the company has now issued at least 1,800 layoffs in 2022 in an effort to better align the size of the business with current demand trends.
There probably isn't much of a surprise factor as it relates to this news since PTON is on a cost-cutting mission. However, what may be catching investors' attention is CEO Barry McCarthy's comment that the company has six months to prove if it can survive on its own. In effect, McCarthy is stating that there's only so much that he can do to save the company. Ultimately, the company's survival will depend upon whether there's sufficient enough demand for its products to generate positive cash flow and earnings.
On that note, PTON has made good progress in reducing its cash burn. In 4Q22, free cash flow improved by about $266 mln yr/yr to ($411.9) mln. After significantly reducing its inventory, and outsourcing all of its equipment manufacturing, McCarthy believes that PTON can reach breakeven cash flow on a quarterly basis in 2H23.
The harder part, though, will come on the sales side. The main challenge is that, in the wake of the pandemic, people want to get out of their homes to work out, rather than spend more time in them. This is clearly evidenced by the recent recovery in Planet Fitness (PLNT), which generated revenue growth of 64% and 67% over the past two quarters. Additionally, the pandemic created a massive pull-forward in demand. Many people who were interested in owning a PTON bike or tread have already purchased one.
If PTON fails to return to growth, it won't be for a lack of effort.
- The company recently launched its bike rental program, providing first generation bikes and All-Access Memberships to users for $89/month. When PTON reported Q4 results, it disclosed that roughly 20% of all first-generation bikes were rented in the limited test markets.
- PTON is definitely getting its products in front of customers. In August, it announced a deal to open a store on Amazon (AMZN), followed a month later by a new partnership with Dick's Sporting Goods (DKS) to sell its equipment at its stores.
- On September 20, PTON unveiled the Peloton Row for $3,195, with pre-orders in the U.S. starting immediately.
PTON is putting up a good fight, but it's hard to shake the feeling that it's climbing a hill that might be insurmountable. Last quarter, net connected fitness subscription additions collapsed by 98% yr/yr, while average monthly connected fitness churn nearly doubled yr/yr to 1.4%. With McCarthy establishing a six-month window for PTON's turnaround to take hold, it won't be too long before the fate of the company becomes clearer.
McCormick trades higher despite EPS miss; supply chain normalization taking longer than expected
McCormick (MKC +1%) is trading modestly higher today despite reporting another EPS miss with its Q3 (Aug) report this morning. EPS misses have been a rare occurrence for this supplier of spices, seasoning mixes, and condiments but the company has now reported back-to-back misses. The silver lining perhaps was that this miss was much smaller, revenue was in-line and MKC reaffirmed full year guidance.
To understand how MKC is doing, we need to analyze its segments independently because each segment is affected by the market in different ways. Its two segments are Consumer (62% of revs) and Flavor Solutions (38%), which caters to food manufacturers and foodservice customers. During the pandemic, Consumer segment sales soared with more people cooking at home, but the FS segment stagnated. But FS has now rebounded as restaurants get back to normal.
- What stood out is that Q3 marked just the third EPS miss in the past 15 quarters. So these back-to-back misses are quite unusual. It was good to see MKC grow revenue again yr/yr after a rare decline in Q2. Revenue growth was modest at 3% yr/yr to $1.60 bln, but that was in-line with expectations.
- It was great to see growth return in the Consumer segment, albeit just barely, up 1% yr/yr to $928 mln. However, sales were up 4% on a constant currency (CC) basis and Q3 saw a 1% unfavorable impact from its Kitchen Basics divestiture. Growth was driven by the Americas and especially Asia/Pacific, fueled by price hikes. Of note, Consumer sales in Asia/Pacific grew 5% and a whopping 10% CC. We suspect COVID lockdowns early in the quarter led to more at-home cooking.
- The star of the show was the FS segment with sales up 6% yr/yr to $668 mln, and up 10% CC, fueled by price hikes in each region. The strongest region by far was the Americas with FS sales up 9% yr/yr, driven by continued high demand from packaged food and beverage companies as well as higher sales to branded foodservice customers.
- Despite the raised prices, the EPS miss was caused by continued supply chain challenges. Getting certain materials has taken longer than expected. Also, MKC is absorbing higher costs to meet high demand in some parts of its business while demand has moderated in other areas, which is resulting in lower operating leverage and impacting margins. The big takeaway is that the normalization of the supply chain costs is taking longer than MKC expected, pressuring gross margin.
Overall, we were a bit surprised to see the EPS miss. The big topic on the last call was MKC saying that it started raising selling prices which should hit the P&L in 2H22. But it sounds like MKC is only just starting to benefit from higher prices. MKC expects to keep raising prices into next year as it plans to fully offset inflation over time. Also, the normalization of the supply chain is taking longer than expected. Importantly, on the demand side, MKC reaffirmed its belief that long-term consumer trends have accelerated since the beginning of the pandemic, including the sustained shift to cooking more at home, even as restaurants have opened back up.
Constellation Brands taps into strong beer business, but wine and spirts are still a headache (STZ)
Alcoholic beverage company Constellation Brands (STZ) tapped into its high riding beer business once again in 2Q23 to deliver a solid beat-and-raise quarterly report. The momentum underlying the company's Mexican beer brands, including Modelo, Corona, and Pacifico, has remained steady, even as macroeconomic headwinds strengthen. Consistent market share gains, especially for Modelo, which remained the top share gainer in the entire U.S. beer category, and an ongoing recovery in the foodservice channel, are driving the strength in STZ's beer category.
Similar to recent past quarters, the beer business outperformed the wine and spirits business by a wide margin. Depletions, which measures the number of cases sold to distributors, increased by nearly 9% for beer, while wine and spirts experienced a 2.2% decline. A few other key items jump out regarding this divergence.
- STZ's wine and spirits segment has undergone some upheaval over the past few years. In STZ's mission to transform its wine and spirits business into a premium/craft portfolio, the company divested most of its lower quality wine brands that are still popular due to their lower price points. Ultimately, the company believes that this premiumization strategy will generate higher margins and profitability, but that hasn't really panned out yet.
- Operating margin for the segment slipped by 40 bps yr/yr to 19.3% as higher raw material and transportation costs more than offset favorable product mix and price increases. At first glance, the modest dip doesn't seem overly alarming. However, the decline looks much worse when considering that STZ lapped a quarter in which operating margin plunged by 620 bps in the year-earlier period.
- The company is doubling down on this strategy, separately announcing that it reached an agreement to sell another portion of its wine portfolio, including Cooper & Thief, Crafters Union, The Dreaming Tree, Monkey Bay, 7 Moons, and Charles Smith Wines. Of course, this shake-up will result in even steeper yr/yr declines for net sales and depletions, placing even more burden on the beer business.
- On a positive note, high-end brands like Meiomi, The Prisoner Wine Company, and Casa Nobel Tequila, experienced double-digit growth in Q2. In total, the fine wine and craft spirits category posted depletion growth of 16%. We do have some concern, though, whether demand for pricier wine and spirits will hold up as consumers tighten their budgets.
- Yesterday, packaged food company Lamb Weston (LW) commented during its earnings conference call that it's seeing a trade-down effect occur in the restaurant industry. Specifically, quick-service restaurants are experiencing an upswing in traffic at the expense of full-service restaurants. That is not a promising trend for wine and spirits sales.
- STZ did nudge the upper end of its FY23 EPS guidance range higher, forecasting EPS of $11.20-$11.60, compared to its prior outlook of $11.20-$11.50. However, this slight upward revision is entirely due to the improving performance of the beer segment, which is now expected to achieve net sales and operating income growth of 8-10% and 3-5%, respectively. Previously, the company was forecasting net sales and operating income growth of 7-9% and 2-4%, respectively.
STZ has held up relatively well this year, with shares down by about 8%, compared to a loss of about 20% for the S&P 500. Its relative strength is tied to the resiliency of its business in difficult economic times, and its healthy earnings growth (+26% in Q2). Today, however, the stock is under pressure as investors may be losing some patience with the underperforming wine and spirits segment. So far, the company's efforts to downsize the segment by focusing only on top tier brands haven't paid off, making today's announcement of unloading more mainstream brands a bit of a disappointment.
Conagra's solid EPS upside in Q1 and reaffirmed FY23 guidance comes up stale compared to peers (CAG)
Conagra (CAG -2%) is starting the day off fairly stale despite posting solid upside on its top and bottom lines in Q1 (Aug). The consumer packaged goods giant, which boasts numerous famous brands like Slim Jim and Vlasic, saw its widest earnings beat in eight quarters, underscoring its ability to navigate through fierce inflationary pressures.
However, we commented leading into CAG's Q1 report that after General Mills' (GIS) top and bottom line upside in AugQ and raised FY23 earnings and organic sales guidance, investors had higher expectations for CAG. As a result, we view CAG's merely reiterated FY23 earnings and organic sales guidance, which was already below analyst expectations last quarter, as a slight letdown. CAG expects FY23 adjusted EPS to expand +1-5% yr/yr and organic revs to grow +4-5%.
Also, CAG's still not-normalized supply chain remains an issue as it continues to result in higher costs. For example, in CAG's Foodservice business, it had to dispose of product due to an off-spec finished good issue, resulting in sales and margins below where they should have been. Additionally, other consumer goods were off-spec, resulting in lost inventory that will linger into Q2, impacting volumes and margins.
Meanwhile, concerns of consumer trade-down occurring in the face of rising prices remain, especially with CAG posting its sixth consecutive quarter of falling volumes yr/yr in Q1. Although its peers, such as GIS and Kellogg (K), have been experiencing sliding volume growth lately, both are not enduring as lengthy a drought as CAG. Management noted that it will continue to monitor the impact its price hikes have on volume as private labels have increased their dollar share of some categories over the past three years, including a meaningful jump beginning this year. Nevertheless, CAG is confident that its brands, combined with its limited exposure to private label alternatives, will help it retain its post-pandemic market share.
- Alongside this upbeat tone, CAG also delivered multiple highlights in Q1. Its volumes fell just 4.6% yr/yr, no worse than GIS. Also, revs accelerated nicely at +9.5% yr/yr to $2.9 bln. At the same time, adjusted earnings expanded by 14% yr/yr to $0.57 per share.
- Additionally, outside of its International business, each of CAG's operating segments saw robust growth, including Foodservice, which led the charge in revenue growth in Q1 at 14.6%. Given the supply chain headwinds in this segment, as well as the industry continuing to face intense inflationary pressures, we view CAG's double-digit growth as a significant win.
- Another highlight stemmed from CAG's Refrigerated & Frozen segment. Although sales only grew 9.6% yr/yr, this business saw the slimmest volume decline at just 2.5%. CAG also noted that it gained share in certain categories, like frozen dinners and plant-based proteins.
Bottom line, even though CAG's Q1 results shined when stacked against its Q4 (May) report, it did not hold up well compared to GIS. That said, we see encouraging developments from Q1, such as accelerating revenue growth and continual share gains in some categories. Furthermore, cooking-at-home trends remain healthy, which should help CAG maintain its share gains even if consumers continue trading down to private labels.
Lamb Weston's gains are no small potatoes as price increases drive strong earnings growth (LW)
Potato producer Lamb Weston (LW) has not been sheepish about acknowledging the challenging macro environment that's in front of it, but the company continues to serve up solid results despite the inflationary and supply chain related headwinds.
The company, which provides fries to McDonald's (MCD), and to many other major restaurant chains and retailers, easily surpassed 1Q23 earnings expectations as EPS surged by 315% yr/yr to $0.75. Bolstered by its strong performance, LW said that it's now tracking towards the high end of its FY23 guidance for EPS of $2.45-$2.85, and revenue of $4.70-$4.80 bln.
At the core of LW's earnings beat and bullish outlook is the company's effective pricing strategy. Over the past fifteen months, LW has increased product pricing multiple times in its Foodservice and Retail segments to counter rising input and transportation costs. Additionally, in the Global Segment (large quick-serve and full-service restaurant chains), LW benefited from price escalators that are included in multi-year contracts, as well as from some price adjustments made outside of those contracts.
Overall, price/mix increased by 19%, fueling a 900 bps surge in gross margin to over 24%. While LW capitalized on previous price hikes in Q1, the company also implemented new pricing actions during the quarter. Consequently, the company expects the pricing tailwinds to gradually build throughout 1H23.
Outside of the positive developments regarding pricing, the news is much more mixed.
- Similar to other packaged food companies, like General Mills (GIS) and Conagra (CAG) -- which reports earnings before the open tomorrow morning -- LW continues to experience declining volumes. Following a 1% drop last quarter, volume declined by 5% in Q1, due to softer casual dining and full-service restaurant dining in the U.S. Persistent supply chain disruptions compounded the issue.
- During the earnings conference call, LW commented that it's seeing a trade-down effect take place in the restaurant industry as a result of high inflation. Specifically, quick-serve restaurants, like MCD, are benefiting at the expense of pricier casual dining and full-service restaurants.
- Meanwhile, in the Retail segment, the company is unable to fully meet demand because its production is constrained. Supply chain issues, including commodity and labor shortages, are limiting its volume.
- LW doesn't anticipate that the macro environment will improve much in 2023, causing demand trends to remain uneven and volatile. However, the company noted that it saw similar restaurant traffic trends during the financial crisis of 2008-2009, and that its business remained resilient during that turbulent time. According to LW, consumers are currently ordering fries at restaurants at a rate above pre-pandemic levels, illustrating this resiliency in demand.
Buoyed by its impressive earnings growth, LW has exhibited remarkable relative strength this year, gaining 30% compared to a loss of 21% for the S&P 500. With additional pricing actions underway, the company is poised to deliver solid bottom-line growth in the quarters ahead, which may translate into further outperformance for the stock.
Last Updated: 06-Oct-22 09:01 ET | Archive
Yesterday carries over to today
The stock market did not finish higher yesterday but it showed some good resolve, briefly rebounding to positive territory after an early 1.8% decline before ending the session with a modest 0.2% loss.
Like yesterday, the futures market was leaning a good bit lower earlier but it has fought back from larger losses.
Currently, the S&P 500 futures are down nine points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 13 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are down 78 points and are trading 0.3% below fair value.
Like yesterday, the stock market is contending with the notion that it has gotten ahead of itself in expecting a Fed policy pivot. Atlanta Fed President Bostic (non-FOMC voter) threw some cold water on the idea, saying late yesterday "not so fast" when it comes to the market's idea that there will be a rate cut in 2023, according to Bloomberg. That remark followed an indication that he believes the fed funds rate should be 4.00-4.50% by year end, and from there he would like to pause and assess things.
The latter will be interpreted by some as a "pivot" since it would be a turn away from a steady stream of rate hikes, but it would certainly not be a pivot to an accommodative policy. Nonetheless, we suspect a market desperately searching for some light at the end of the dark rate-hike tunnel will take some comfort in the idea that there could be a potential pause to start 2023 if Mr. Bostic's view resonates with other Fed officials.
We would contend this morning that the market is taking some comfort, like it did yesterday, from the recognition that Treasury yields have not been able to move above Friday's settlement levels. The 2-yr note yield climbed to 4.18% a few hours ago, but then faded away to its current level of 4.15%. The 10-yr note yield, meanwhile, flirted with 3.79% overnight and now sits at 3.76%.
The weekly jobless claims report moved in a satisfying manner for a market aware that the Fed wants to see some softening in the labor market. The softening in the latest claims report, though, isn't exactly material.
Initial jobless claims for the week ending October 1 increased by 29,000 to 219,000 (Briefing.com consensus 203,000) while continuing jobless claims for the week ending September 24 increased by 15,000 to 1.361 million.
The key takeaway from the report is that initial claims -- a leading indicator -- have a lot more scope for deterioration before the Fed can be convinced that its rate hikes have induced a sufficient softening in the labor market to ease wage-based inflation pressures.
The Fed, and everyone else, will have a lot to consider tomorrow when it comes to the employment situation. That situation will be on display with the release of the September employment report at 8:30 a.m. ET.
In the meantime, there has been more hemming and hawing today over yesterday's decision by OPEC+ to cut its production by two million barrels per day starting in November. That move has drawn criticism from the White House and it has created some additional geopolitical tension at a time when the world doesn't need any more geopolitical tension.
WTI crude futures are up 0.1% to $87.84 per barrel, leaving them up 10.5% for the week.
-- Patrick J. O'Hare, Briefing.com
The Big Picture
Last Updated: 06-Oct-22 16:08 ET | Archive
Earnings Preview: Q3 and Beyond
The third quarter is over, but we're not done with it yet. In fact, we are going to hear a lot about the third quarter in coming weeks as publicly traded companies report their earnings results for the July-September period.
We know already that it was a tough period for the stock market. The S&P 500 declined 5.3% in the third quarter. It did so as interest rates went up and earnings estimates came down.
We'll soon learn if the third quarter earnings estimates were cut too much or not enough. According to FactSet, the estimated earnings growth rate for the third quarter was 9.8% on June 30. Today it sits at 2.3%.
The third quarter earnings bar has been lowered significantly, and we suspect it will be relatively easy for most companies to clear it. The bigger hurdle -- and where we think more companies than usual will get tripped up -- is the guidance.
A Tipping Point
The coming week will feature only a handful of S&P 500 companies reporting their results, but that doesn't mean it will be an insignificant week of reporting.
Three Dow components -- Walgreens Boots Alliance (WBA), JPMorgan Chase (JPM), and UnitedHealth (UNH) -- will be reporting along with several other high-profile financial companies, including BlackRock (BLK), Citigroup (C), Morgan Stanley (MS), PNC (PNC), U.S. Bancorp (USB), and Wells Fargo (WFC).
None of these reports will be released before Thursday, which will make for a back end loaded week of reporting fireworks knowing that the September Consumer Price Index will be released on Thursday and the September Retail Sales Report will be released on Friday.
We do not want to go astray on this earnings preview piece delving into the economic releases, but the fact of the matter is that the economy is going to factor prominently in the earnings reporting period.
That isn't anything new, yet it will have more bearing than it typically does because the U.S. economy -- and the global economy for that matter -- is thought to be at a tipping point because of the rapid-fire rate hikes from many of the world's leading central banks.
In many respects the global economy has already tipped. Growth is slowing and now it is a matter of whether the economy keeps tipping into a recession. Some will argue that it already has, sticking to a technical definition of two straight quarters of a decline in real GDP, yet others will point to remarkably low unemployment rates to refute that notion.
Regardless, the behavior of the stock market this year and the inverted yield curve make it clear that economic optimism is not running high.
We Have a Situation
We are going to hear a lot of attention being paid to "macroeconomic conditions" during the reporting period and most likely a lot of reservations being expressed about the macroeconomic situation, which is eroding under the weight of high inflation, rising interest rates, a strong dollar, lingering supply chain issues, geopolitical turmoil, high energy prices, a reduced wealth effect, and China's zero-Covid policy.
We might have missed a nettlesome factor or two, but the market and corporate managers clearly have a high wall of economic worry to climb.
It is noteworthy then that we will hear from many of the country's leading financial institutions at the start of the third quarter reporting period. We will get a line right away on the economic outlook based on what the banks are doing with their loan-loss reserves, what the investment banks are saying about the impact of the volatility in capital markets, and what they are all doing with their own growth plans.
Undoubtedly, JPMorgan Chase CEO Jamie Dimon will be asked if he still thinks an "economic hurricane" is coming. It wouldn't surprise us if he said a lot depends on what the Fed decides to do from here, which is really what the overall market is worrying about, too.
A Moving Target
The financials sector is expected to report a 12.4% year-over-year decline in earnings for the third quarter, according to FactSet. That is the second-largest decline among the 11 sectors, trailing only communication services (-13.8%).
Once again, the energy sector will be doing the heavy earnings lifting for the S&P 500. Third quarter earnings for the sector are projected to be up 115.1% year-over-year, which would account for nearly 6.1 percentage points of overall earnings growth. The other sectors expected to make positive contributions, per FactSet data, are industrials (1.61 pp), consumer discretionary (0.60 pp), and real estate (0.38 pp).
The remaining seven sectors are all expected to report year-over-year earnings declines that will subtract 6.36 percentage points from growth.
One can see, too, that profit margins are going to face some pressure. That shows up in the fact that S&P 500 revenue growth is projected to be 8.7% year-over-year, yet earnings growth is only expected to be 2.3%.
The same rings true for the fourth quarter. Early estimates suggest fourth quarter revenue will increase 5.9% year-over-year while fourth quarter earnings increase 3.8% year-over-year.
Those estimates will be subject to change -- and they will change. We expect the earnings estimate to come down as the third quarter reports roll out and as the fourth quarter continues to unfold.
Regular readers know that we also think the calendar year 2023 earnings growth estimate of 8.1% is also too high considering the lag effect of central bank rate hikes and the various factors mentioned above that are contributing to a deterioration in the macroeconomic situation.
What It All Means
The stock market has been accounting for the worsening earnings environment, which is why the forward 12-month P/E multiple has contracted to 16.1x from 21.2x at the start of the year. Investors have not been as willing as they used to be to pay up for every dollar of earnings growth in a rising interest rate environment.
That is the case because it is understood that earnings growth is going to be under pressure.
Just how much pressure is the great unknown. Research done by D.A. Davidson indicates the average earnings decline for the past ten recessions has been 29.5%. Excluding the financial crisis and the dotcom bust periods, the average decline has been 18.7%.
An 8.1% growth rate for 2023 sure seems to be generous at this point given all the writing on the economic wall of worry that points to little growth at best in 2023 or a recession at worst.
Guidance that substantiates the need to cut earnings estimates will be an obstacle for the stock market at first and an opportunity later.
The obstacle will relate to difficulty in assessing the stock market's true value as earnings estimates get marked down further. The opportunity will arise when earnings estimates match more closely with the economic reality and investors feel more confident that they are buying value and not falling into a value trap that has been set with high earnings estimates that won't be met.
-- Patrick J. O'Hare, Briefing.com
Meanwhile, the U.S. Dollar Index is up +0.9% to $112.09.
|
| | Semi Equipment Analysis | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last Read |
|
| To: Robert O who wrote (89103) | 10/6/2022 9:59:13 PM | | From: Return to Sender | | | | Yeah, I am treating this as a swing trade opportunity. Volume did not confirm a real long term bottom for me. My plan is to sell into strength before or at least by the time CSCO reports earnings on November 16.
That said if you or anyone reading this is buying stocks associated with the SOX then I do not think you can lose longer term.
If this was a true long term bottom then the SOX would be exploding higher. Maybe it will still do that? Chances are the Fed screws the market up big time trying to control inflation.
I am still 40% cash myself.
RtS |
| | Semi Equipment Analysis | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last Read |
|
| To: Return to Sender who wrote (88983) | 10/7/2022 9:45:15 AM | | From: Return to Sender | | | | Advanced Micro lowers Q3 revenue and gross margin guidance due to lower than expected PC demand and a significant inventory correction in PC supply chain
4:18 PM ET 10/6/22 | Briefing.com
Co lowers guidance, sees Q3 revenue of approximately $5.6 bln vs. prior guidance of $6.7 bln, +/- $200 mln, and vs. the $6.69 bln S&P Capital IQ consensus estimate.Sees Data Center revenue of ~$1.6 bln, up 45% yr/yr.Sees Gaming revenue of ~$1.6 bln, up 14% yr/yr.Sees Client revenue of ~$1.0 bln, down 40% yr/yr.Preliminary results reflect lower than expected Client segment revenue resulting from reduced processor shipments due to a weaker than expected PC market and significant inventory correction actions across the PC supply chain.Lowers non-GAAP gross margin outlook to about 50% from 54%. Te gross margin shortfall to expectations was primarily due to lower revenue driven by lower Client processor unit shipments and average selling price (ASP). In addition, the third quarter results are expected to include approximately $160 million of charges primarily for inventory, pricing, and related reserves in the graphics and client businesses.Non-GAAP operating expenses are lower than previous expectations of $1.6 billion driven by lower variable compensation expenses in the quarter."While our product portfolio remains very strong, macroeconomic conditions drove lower than expected PC demand and a significant inventory correction across the PC supply chain. As we navigate the current market conditions, we are pleased with the performance of our Data Center, Embedded, and Gaming segments and the strength of our diversified business model and balance sheet. We remain focused on delivering our leadership product roadmap and look forward to launching our next-generation 5nm data center and graphics products later this quarter."
 |
| | Semi Equipment Analysis | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last ReadRead Replies (1) |
|
| To: Return to Sender who wrote (89108) | 10/7/2022 9:47:28 AM | | From: Return to Sender | | | | MW Dow drops over 300 points after September jobs report, but stocks aim for weekly rise
9:42 AM ET 10/7/22 | MarketWatch
By William Watts and Steve Goldstein
U.S. stocks fell sharply Friday, cutting into weekly gains, after September jobs data showed an unexpected fall in the unemployment rate that's expected to reinforce the Federal Reserve's resolve to keep tightening monetary policy.
Investors were also weighing a profit warning at a leading microchip maker.
What's happening
Stocks were on track for back-to-back losses but were still headed for solid weekly gains, with the Dow and S&P 500 each up around 3% and the Nasdaq up 2.8%.
What's driving markets
The Labor Department said the U.S. economy added 263,000 jobs in September, while the unemployment rate declined to 3.5% from an August reading of 3.7%. Average hourly earnings rose 0.3%.
"It's becoming more and more evident the labor market is playing a critical role in today's inflation battle," said Steve Rick, chief economist at CUNA Mutual Group, in a note. "If unemployment remains low, employers will increase wages to attract talent, creating more disposable income. Increased purchasing power will then lead to increased demand for goods and services, spiking prices and potentially causing the Fed to raise rates even more."
Federal Reserve Gov. Christopher Waller late on Thursday said he doesn't expect the jobs report to change anyone's thinking at the central bank. "A jobs number [around 260,000] along with the job openings rate reported on Tuesday would show that the labor market is slowing a bit but is still quite tight. As a result, I don't expect tomorrow's jobs report to alter my view that we should be focused 100% on reducing inflation," he said.
Of course, it's in the Fed's interest not to signal a pivot in policy until it's ready to make one, given its belief that keeping financial conditions tight will help to reduce inflation. New York Fed President John Williams will have the opportunity to comment on the data when he speaks at 10 a.m. ET.
Besides the jobs report, investors will weigh a profit warning from microchip maker AMD (AMD), which said the PC market weakened significantly during the quarter. AMD shares fell 5% in premarket trade, and rivals including Nvidia (NVDA) and Intel (INTC) also were lower.
The PHLX semiconductor index has dropped 36% this year.
-William Watts |
| | Semi Equipment Analysis | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last Read |
|
| To: Return to Sender who wrote (89104) | 10/7/2022 7:42:08 PM | | From: Return to Sender | | | | BPNDX Fell 9 to 40 PnF Buy Signals - [AMAT AMD CDNS COST DDOG IDXX MELI OKTA SPLK removed]
| Mon | Tues | Wed | Thur | Fri | | ADP | ADP | ABNB | ABNB | ABNB | | AMAT | AMAT | ADP | ADP | ADP | | BIIB | ASML | ADSK | ADSK | ADSK | | CPRT | BIIB | AMAT | ALGN | ALGN | | DDOG | BKNG | ASML | AMAT | ASML | | FAST | CDNS | BIIB | AMD | BIIB | | GILD | CHTR | BKNG | ASML | BKNG | | KDP | CPRT | CDNS | BIIB | CHTR | | KLAC | CRWD | CHTR | BKNG | CPRT | | MELI | CTAS | CPRT | CDNS | CRWD | | ORLY | DDOG | CRWD | CHTR | CTAS | | REGN | FAST | CTAS | COST | DXCM | | SIRI | GILD | DDOG | CPRT | FAST | | TMUS | IDXX | FAST | CRWD | GILD | | VRSN | ISRG | GILD | CTAS | GOOGL | | VRTX | KDP | IDXX | DDOG | ILMN | | WDAY | KLAC | ILMN | DXCM | INTU |
| MCHP | INTU | FAST | ISRG |
| MELI | ISRG | GILD | KDP |
| MRNA | KDP | GOOGL | KLAC |
| NTES | KLAC | IDXX | LULU |
| NXPI | MCHP | ILMN | MCHP |
| OKTA | MELI | INTU | MRNA |
| ORLY | MRNA | ISRG | MRVL |
| PCAR | MRVL | KDP | NTES |
| PDD | NTES | KLAC | NXPI |
| PYPL | NXPI | LULU | ORLY |
| REGN | OKTA | MCHP | PCAR |
| ROST | ORLY | MELI | PDD |
| SBUX | PCAR | MRNA | PYPL |
| SIRI | PDD | MRVL | REGN |
| TMUS | PYPL | NTES | ROST |
| VRSN | REGN | NXPI | SBUX |
| VRTX | ROST | OKTA | SIRI |
| WDAY | SBUX | ORLY | TMUS |
| ZM | SIRI | PCAR | VRSN |
| ZS | SPLK | PDD | VRTX |
|
| TMUS | PYPL | WDAY |
|
| VRSN | REGN | ZM |
|
| VRTX | ROST | ZS |
|
| WDAY | SBUX |
|
|
| ZM | SIRI |
|
|
| ZS | SPLK |
|
|
|
| TMUS |
|
|
|
| VRSN |
|
|
|
| VRTX |
|
|
|
| WDAY |
|
|
|
| ZM |
|
|
|
| ZS |
| |
| | Semi Equipment Analysis | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last ReadRead Replies (1) |
|
| To: Return to Sender who wrote (89105) | 10/7/2022 7:48:33 PM | | From: Return to Sender | | | | BPSOX Fell 5 to 8 PnF Buy Signals - [AMAT AMD ENTG MKSI MPWR removed]
| Mon | Tues | Wed | Thur | Fri | | AMAT | AMAT | AMAT | AMAT | ASML | | KLAC | ASML | ASML | AMD | KLAC |
| ENTG | ENTG | ASML | MCHP |
| KLAC | KLAC | ENTG | MRVL |
| MCHP | MCHP | KLAC | NXPI |
| MKSI | MKSI | MCHP | ON |
| MPWR | MPWR | MKSI | SLAB |
| NXPI | MRVL | MPWR | WOLF |
| ON | NXPI | MRVL |
|
| WOLF | ON | NXPI |
|
|
| SLAB | ON |
|
|
| WOLF | SLAB |
|
|
|
| WOLF |
| |
| | Semi Equipment Analysis | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last ReadRead Replies (1) |
|
| |
