TOYOF - Wall Street Breakfast Podcast: Crude Oil Slips As OPEC Cuts Underwhelm

2023-12-01 07:38:00 ET

Summary

• Crude oil slips as OPEC's voluntary production cuts disappoint.
• Tesla delivers first Cybertrucks, showcasing its features and capabilities.
• U.S. stocks end Thursday mixed, but November performance is one of the best on record.
• Disney declares dividend and gears up for Board battle.

Listen above or on the go on Apple Podcasts and Spotify

Crude oil slips as OPEC's voluntary production cuts underwhelm (3:22) Tesla delivers first Cybertrucks as it looks to shake up electric truck segment (4:47) Disney declares dividend after 3 year hiatus (6:52).

This is an abridged transcript of the podcast:

U.S. stocks on Thursday ended mixed, but Wall Street notched one of its best November performances on record, driven by a general consensus that the Federal Reserve is done hiking rates and can deliver a mixed landing.

Market participants in today's session digested favorable inflation data which was offset by a higher-than-anticipated gauge of business activity.

The tech-heavy Nasdaq Composite ( COMP.IND ) slipped 0.23% to close at 14,226.22 points. The benchmark S&P 500 ( SP500 ) added 0.38% to settle at 4,567.80 points. For November it posted gains of nearly 9% - its biggest monthly advance since July 2022. The blue-chip Dow ( DJI ) advanced 1.47% to finish at 35,951.22 points on the back of a ~9% surge in Salesforce ( CRM ).

For the month, the Nasdaq added 10.70%, the S&P added 8.92% and the Dow added 8.77%.

"Today was a mixed day to end a fascinating month. To me, the biggest takeaway is that the rally was mainly driven by very dovish market expectations. The market now expects five interest rate cuts next year, lowering the Fed funds rate to the 4.00% to 4.25% range," Leo Nelissen, part of investing group iREIT on Alpha , told Seeking Alpha.

"While these expectations are certainly not bearish for tech stocks, the problem continues to be the underlying economy. The Fed has never had a cycle of regular rate cuts without being forced to cut to fight a recession. That is not bullish," Nelissen added.

Of the 11 S&P sectors, eight ended in the green, led by Health Care. Communication Services topped the losers.

Energy fluctuated, finally ending with gains amid swings in WTI crude oil futures.. The instrument initially rose after reports that OPEC+ had agreed to an additional 1M bbl/day production cut, but then slid as details of the decision emerged.

"More evidence is the fact that oil is selling off despite another 900 thousand barrels per day OPEC output cut. The market is seeing severe demand weakness on the horizon. While I do not hold shorts, I continue to expect pressure on the market unless we get more data pointing at a soft landing. Looking at oil, employment developments, and consumer spending, that clearly is not yet the case,” Nelissen said.

A busy economic calendar was kicked off before the start of trading, with the number of Americans filing for initial jobless claims in the past week rising to 218K, though coming in just below the consensus estimate of 219K.

More significantly, the personal income and outlays report for October showed a 3.5% Y/Y advance in the the Federal Reserve's preferred inflation gauge - the core personal consumption expenditures price index. This marked its lowest print this year.

The positive sentiment sparked by the inflation data was tempered after Chicago PMI for November blew past estimates to come in at 55.8, surging into expansion territory and 11.8 points above October's reading.

Treasury yields were higher on Thursday, with traders taking a breather from snapping up bonds. The longer-end 30-year yield ( US30Y ) was up 6 basis points to 4.51%, while the 10-year yield ( US10Y ) was up 7 basis points to 4.34%. The shorter-end more rate-sensitive 2-year yield ( US2Y ) was up 5 basis points to 4.70%.

See how Treasury yields have done across the curve at the Seeking Alpha bond page.

U.S. crude oil surrendered early gains and tumbled more than 2% Thursday, even after OPEC+ announced some member nations agreed to voluntary cuts approaching 2M bbl/day starting in January, as Bloomberg said traders were disappointed by the smaller than expected cuts and lack of details on quota enforcement.

But at least 1.3M bbl/day of the cuts were an extension of the voluntary reductions that Saudi Arabia and Russia already had in place, after delegates had said new additional cuts under discussion totaled as much as 2M bbl/day.

The voluntary nature of the cuts also sparked skepticism over whether they will actually be delivered.

Angola already rejected its new output target, saying it will continue pumping as it was previously; it remains to be seen whether other OPEC+ members will follow through on their commitments.

"What the market was hoping for was a unified voice on agreed-upon cuts. Instead, what we apparently are getting is a series of individual Saudi-lite voluntary cuts," CFRA analyst Stewart Glickman said.

OPEC's biggest news may have been the addition of Brazil, which is set to raise output to 3.8M bbl/day next year but will not be part of this round of production cuts.

Front-month Nymex crude ( CL1:COM ) for January delivery closed -2.4% Thursday to $75.96/bbl, while January Brent crude ( CO1:COM ) settled -0.3% to $82.83/bbl; for the month, WTI fell 6.2% and Brent dropped 5.2%.

Meanwhile, emphasizing the difficulty of OPEC's objectives, the U.S. reported its crude output continued to grow, increasing 1.7% in September to a monthly record 13.24M bbl/day, the Energy Information Administration said.

Tesla (NASDAQ: TSLA ) held an event at the Gigafactory in Austin, Texas on Thursday to showcase the first deliveries of the long-awaited Cybertruck .

Elon Musk said the Cybertruck is a special product that experts claimed would be impossible to build. He highlighted the Tesla-designed stainless steel super alloy used for the exoskeleton, as well as the bullet-proof toughness of the pickup truck and its low center of gravity. In terms of utility, the Cybertruck was noted to have 2,500 pounds of payload capability. In a head-to-head towing matchup with the Ford ( F ) F-350 diesel truck, Rivian Automotive ( RIVN ) R1T, and Ford ( F ) F-150 Lightning - a Tesla ( TSLA ) video demonstrated that the Cybertruck came out ahead. Tesla also highlighted the .335 drag coefficient, and Musk said the off-road capabilities were "insane." In terms of speed, the Cybertruck went 0 mph to 60 mph in 2.6 seconds and beat a Porsche 911, while also towing a Porsche 911.

During Tesla's ( TSLA ) Q3 earnings conference call, Elon Musk pointed to "enormous challenges in reaching volume production" with the Cybertruck, and then in making the model cash-flow positive. However, the tone at the event on Thursday was much more positive.

Tesla said the starting price for the cheapest Cybertruck variant is $61K before "probable" savings are applied. The range is estimated at 340 miles.

The electric pickup truck concept was first announced by Tesla ( TSLA ) in 2019 and pilot production finally began earlier this year. While the Cybertruck is not anticipated to be a high-volume seller, a well-known Cybertruck reservation tracker estimates that net reservations currently stand at 2.10M. The market for full-size pickup trucks is large, with Ford Motor ( F ), General Motors ( GM ), and Toyota Motor ( TM ) all generating huge profits. The Cybertruck will compete against the all-electric models such as the Ford ( F ) F-150 Lightning, the GMC Hummer EV, the Rivian Automotive ( RIVN ) R1T, the all-electric Chevrolet Silverado, and the upcoming Ram 1500 REV. Further down the road, the Fisker ( FSR ) Alaska pickup truck and Canoo ( GOEV ) pickup trucks are expected to enter the market.

Longtime Tesla shareholder Gary Black thinks the Cybertruck delivery launch is likely to boost orders of all the company's models in a halo effect, similar to what happened after the Model Y in 2020. He also expects a smaller Cybertruck 2 in a few years for the Europe and Asia markets.

The Walt Disney Company (NYSE: DIS ) said Thursday its board declared a dividend of $0.30 per share in respect of the second half of fiscal year 2023.

The cash dividend is payable on January 10, 2024, to shareholders of record at the close of business on December 11, 2023.

The company last declared its semi-annual dividend of $0.88/share back in December 2019.

Activist investor Nelson Peltz will launch a proxy campaign for seats on Walt Disney's (NYSE: DIS ) board after the entertainment giant told the activist that it's turning down his fund's request for board representation.

On Thursday morning after conversations with Disney CEO Bob Iger, Disney extended an offer to Peltz's Trian Fund Management to meet with the board, though the company informed Trian that the board is rejecting the fund's recent request for board representation, including for Peltz to be added to the board, according to a statement from Trian on Thursday. Trian owns about $3B of Disney stock.

The report comes after Disney on Wednesday said it appointed Morgan Stanley CEO James Gorman and veteran media executive Jeremy Darroch as its new directors. The addition of Gorman and Darroch will temporarily increase the board size to 13 members.

"While James Gorman and Sir Jeremy Darroch represent an improvement from the status quo, the addition of these directors will not, in our view, restore investor confidence or address the root cause behind the significant value destruction and missteps that this Board has overseen," Trian said in a statement. "Trian intends to take our case for change directly to shareholders.”

Most of Peltz's stake is through shares owned by billionaire ex-Marvel Entertainment Chairman Isaac Perlmutter, the WSJ reported late last month. Peltz's Trian holdings total about 33M shares, including stock the firm holds under an arrangement that gives Peltz's firm sole voting power over Perlmutter's shares.

Disney responded to the Trian proxy fight in a statement on Thursday. Disney highlighted that Perlmutter owns 78% of the shares that Peltz claims beneficial ownership of, or more than 25M of the 33M shares.

"This dynamic is relevant to assessing Mr. Peltz and any other nominees he may put forth as directors, as Mr. Perlmutter was terminated from his employment by Disney earlier this year and has voiced his longstanding personal agenda against Disney’s CEO, Robert A. Iger, which may be different than that of all other shareholders," Disney said in the statement.

Peltz previously tried to run for a seat on Disney's (NYSE: DIS ) board, following the company's rejection of his request to become a director. He withdrew his nomination after Disney ( DIS ) announced major cost cuts . At the time, Peltz insisted that Disney ( DIS ) CEO Bob Iger had to deliver on his promises.

News of the Trian proxy fight was earlier reported by CNBC.

Casual dining group Panera Brands has confidentially filed for an initial public offering, according to the Financial Times, with plans for an IPO in 2024.

Sources say that the restaurant chain tried to sell itself via a continuation fund earlier this year, but could not get the support, and eventually had to lay off 17% of its workforce to streamline operations and boost performance before a public listing.

Expanding its coffee and breakfast empire, investment group JAB acquired Panera Bread for $7B in 2017, adding to its portfolio that now includes Einstein Bros. Bagels and Caribou Coffee.

Salesforce (NYSE: CRM ) on Thursday filed for a mixed shelf, size not disclosed, on a day when the stock surged more than 9% as investors and analysts cheered the cloud-based software firm's quarterly results.

The prospectus may include debt securities, common stocks, preferred stock, warrants, depositary shares, purchase contracts, guarantees and units.

Salesforce after hours on Wednesday reported a FQ3 2024 adjusted earnings per share beat and a more than 11% Y/Y rise in revenue. Moreover, the company issued profit guidance for FQ4 that came in higher than expectations.

Wall Street lauded the performance of the Dow 30 component, with several Buy ratings being reiterated on the stock. Analysts also highlighted how artificial intelligence-based products helped Salesforce's earnings and forecasts.

Salesforce ( CRM ) top boss Marc Benioff on the earnings conference call noted that the company saw a big growth of 80% in deals of more than $1M in the quarter.

Montana was set to become the first state in the nation to ban TikTok, which is owned by the Chinese tech giant ByteDance ( BDNCE ), but it looks like the move is running into familiar roadblocks. Federal Judge Donald Molloy has blocked the bill set to go into effect on Jan. 1, 2024, saying the measure "violates the Constitution in more ways than one" and "oversteps state power."

While individual users would not have been punished, the law could have imposed fines of $10,000 on any "entity" - namely the app stores of Apple ( NASDAQ: AAPL ) and Google ( NASDAQ: GOOG ) ( NASDAQ: GOOGL ), or TikTok itself - each time someone was "offered the ability" to access or download the TikTok app.

China’s Manufacturing PMI improves to three-month high in November, beating market forecasts and pointing to the highest reading since August. Both output and buying levels returned to growth, amid recent efforts to revive a sluggish economy. New orders rose the most in four months while the rate of job shedding eased.

Japan's factory activity contracts for the sixth straight month in November. The latest reading was the steepest contraction in the manufacturing sector since February. Purchasing activity fell the most in nine months, while delivery times lengthened.

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