2023-11-21 11:50:00 ET
Summary
- The S&P 500 stages a historic comeback, exiting correction territory in just 16 trading days.
- Citi's quant team predicts further gains in the market due to short sellers being caught off-guard.
- Lowe's and Best Buy report disappointing Q3 results, while Baidu's earnings beat expectations.
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The S&P 500 exited a correction in just 16 trading days. (0:15) Best Buy sounds a warning on the consumer. (2:49) OpenAI investors mull legal action . (4:00)
This is an abridged transcript.
Out top story so far
The S&P 500 ( SP500 ) staged the kind of comeback that only comes around every half a century.
The benchmark index’s higher close yesterday pulled it out of correction territory, closing at its highest level since early August. A correction is typically defined as a 10% drop from the recent high.
The rebound took just 16 sessions , the shortest turnaround time since the 1970s, according to data from Dow Jones.
Deutsche Bank’s Jim Reid notes that the index is on course for its best monthly performance since July 2022.
But he warns that back then it was another month where “news flow was predominantly negative (European gas risks, Fed hiking 75bps), but growing hopes about a dovish pivot helped support a brief resurgence for markets, ahead of bigger losses over the next couple of months.:
“So a potential word of warning if the Fed and others do stay hawkish.”
In the near term, though, Citi’s quant team says more gains could be ahead due to a short squeeze .
“The pace of the recovery has been rapid and appears to have caught many short holders off-guard, leaving a large amount of legacy short positions in loss," Cit’s head of quant Chris Montagu said.
"Average short losses for Nasdaq ( COMP.IND ) are slightly larger at 5.6%, whereas average S&P 500 short position losses are near 4.3%. Both are considerable, and a further rally could lead to increased forced covers and lend near-term support to markets."
In today’s trading
The S&P is giving back a little of its gains. It’s down -0.5%, with the Nasdaq down about -1% and the Dow faring better.
Rates are fairly steady. The 10-year Treasury yield ( US10Y ) is around 4.40%.
Among morning economic data, October existing home sales fell -4.1% on the month to a pace of 3.79 million. That was below the 3.9 million consensus estimate and 3.95 million in September.
“Prospective home buyers experienced another difficult month due to the persistent lack of housing inventory and the highest mortgage rates in a generation,” NAR Chief Economist Lawrence Yun said.
The median existing-home sales price rose 3.4% from a year ago to $391,800, marking the fourth-straight month of price increases.
Among active stocks
Lowe's ( LOW ) fell after missing revenue expectations in Q3. Lowe’s reported comparable sales down -7.4% to miss the consensus estimate for a decline of -4.9%. The company pointed to a drop in DIY discretionary spending, partially offset by positive Pro customer comp sales.
Also in retail, Best Buy ( BBY ) said that in the more recent macro environment, consumer demand has been more uneven and difficult to predict . "Based on the sales trends in Q3 and so far in November, we believe it is prudent to lower our annual revenue outlook," CEO Corie Barry said.
Baidu’s ( BIDU ) third-quarter results beat estimates . Non-GAAP earnings per American depositary share rose about 21% year-over-year to RMB20.40, or $2.80. The consensus EPS estimate was $2.34, but quarter-over-quarter earnings declined about 10%. Revenue grew 6% year-over-year to RMB34.45 billion, or $4.72 billion, a touch ahead of forecasts.
And VinFast Auto ( VFS ) jumped after Wedbush started off coverage on the Vietnamese electric vehicle maker with an Outperform rating in something of an outlier call.
Analyst Dan Ives says: "While some investors will paint Vinfast negatively with the SPAC brush, we strongly disagree with the bear's criticism. We have been to auto factories around the world and what Vinfast has built in Vietnam is unique and one of the most impressive facilities I have seen with a scale and EV technology that is foundational to our bull thesis."
In other news of note
The battle for the direction of OpenAI continues.
Some investors in the ChatGPT maker are exploring legal recourse against the company's board. That’s according to Reuters.
Investors are concerned that they could lose hundreds of millions of dollars they invested in OpenAI if there is a mass exodus of employees following the ouster of chief Sam Altman.
Microsoft ( MSFT ) owns 49% of the for-profit operating company, while other investors and employees control 49%, and 2% owned by OpenAI's nonprofit parent, according to reports.
In addition, Reuters says OpenAI's board approached competitor Anthropic's CEO regarding replacing Altman and potentially merging the two AI companies,
And in the Wall Street Research Corner
BofA strategist Michael Hartnett takes a look at what money managers least expect next year.
Hartnett surfaces 12 things institutional investors aren't preparing for in 2024, according to the recent Fund Managers Survey.
Among the list are
Better geopolitics, with 89% of respondents saying risk is above normal.
A hard economic landing, with just 21% expecting that.
Higher inflation, a flatter yield curve and the Magnificent 7 megacap tech stocks underperforming the market also make the list.
For further details see:
Wall Street Lunch: Back In A Flash