Day: October 24, 2024

Summary

Sector Breadth a Positive Heading into Year-End The S&P 500 closed on October 18, logging its sixth consecutive winning week. During that mid-October week, the three major averages – the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite – all set new all-time highs. That’s a rare example of the blue-chip index, the broad market, and growth stocks all moving in concert. One reason the major indices are moving broadly in lockstep follows from analysis of S&P sector performance. The growth leadership that characterized most of 2023 and the 2024 first half gave way to non-traditional leaders in 3Q24; these included rate-sensitive, cyclical, and defensive sectors. All but one sector was positive in 3Q24, but the various sectors had highly varied performances. The tag-team approach to sector leadership across the nine months has contributed to well-balanced year-to-date performance. All sectors are positive for 2024, and all but one sector was up in double-digit percentages for the year to date as of 9/30/24. Sector Performance for 1H24 In the first quarter of 2024, investors saw signs that leadership in the market might be shifting. During the quarter, the S&P 500 delivered capital appreciation of 10.2%. Five sectors either outperformed the broad market or finished within a percentage point of the S&P 500. Two were the traditional growth leaders: Communication Services finished up 11.9%, and the Information Technology sector appreciated 10.0%. The best two sectors, however, were not the traditional leaders. Energy and Financial both finished on March 31 with 12.0% gains. Another sector, Industrial, was a tick behind Financial, with a 9.9% gain. Healthcare and Materials both had solid third quarters, with gains of about 8% and 7%, respectively. In a sign of things to come, Utilities – out of favor particularly during the Fed’s rate-hiking campaign of 2022-2023 – logged a roughly 6% first-quarter gain. Stock sectors with above-market income tend to outperform the broad market in periods of declining interest rates. Although the Fed stood pat during 1Q24, the market was already buzzing about the potential for rate cuts later in the year. The only negative sector in the quarter was Real Estate, down 3%. While Utility stocks tend to move in lockstep, Real Estate equities in different niches are subject to different cyclical and secular forces, such as the pandemic-driven collapse in commercial office occupancy. In the second quarter of 2024, the broad market advance was much more subdued, with the S&P 500 rising less than 4% after its 10%-plus surge in 1Q24. Growth leadership reasserted itself in the second quarter. With buzzwords like ‘Mag 7’ and ‘Gen AI’ resonating in the background, Information Technology led the market with an 11.4% gain. Communication Services also topped the broad market with a 4.9% gain. While growth was back, the shift toward beneficiaries of declining interest rates further accelerated as the likelihood of the first Fed rate cut drew nearer. The Utility sector appreciated 4% in 2024. Possibly because of those secular factors cited above, Real Estate continued to struggle and declined about 2% in the quarter. Multiple other sectors were negative in 2Q24, including Industrial and Materials (both down about 5%), Energy (down 3%), and Financial and Healthcare (both down about 1%). For the full first half of 2024, growth sectors won; but participation widened across the broad market, and only one sector (Real Estate) was down. In the first half of 2024, the S&P 500 appreciated 14.5%. Just two sectors did better than the market in the first half: Information Technology, up 22.6%; and Communication Services, up 17.4%. The two other double-digit winners in the first half were Financial, up 11%; and Utilities, up about 10%. The paired leadership of the third- and fourth-place sectors may seem counter-intuitive. If rates are about to come down, wouldn’t that hurt net interest margins at banks? While that is true, banks have many other fee-based businesses, including investment banking, capital markets financing, and consumer loans, that benefit in a declining rate environment. Besides the negative showing from Real Estate, five other sectors posted single-digit gains in 1H24: Energy (up 9%), Healthcare (up 7%), Consumer Staples (up 6%), Industrials (up 4%), and Materials (up 1%). Those latter two sectors are at least partly sensitive to demand from China, which as of mid-year remained mired in its slump. Sector Performance for 3Q24 Investors at mid-year 2024, assessing the clear growth leadership at the sector level, may have thought that 2024 would shape up as a replay of 2023: a narrowly led market defined by AI fever. Instead, non-traditional sectors grabbed the leadership reins in 3Q24. Why did the market pivot away from growth and toward defensive, rate-sensitive, and cyclical in 3Q24? Seasoned investors always want to take money off the table before some kind of sentiment shift turns paper profits into a wisp of smoke. That explains the rotation away from growth. As for the rotation toward other sectors, signs that China was becoming serious about stimulating its economy stirred interest in the commodities complex, as did the worsening situation in the Middle East. And midway through September, the Federal Reserve cut interest rates for the first time in over four years. In the third quarter of 2024, the broad market advanced 7.4%, splitting the difference between first- and second-quarter gains. With the first Fed rate cuts no longer imminent but now a reality, momentum shifted clearly to income sectors. Real Estate made up for its late start and led the S&P 500 in 3Q24 with a 17.2% gain. Just behind was Utilities with a 16.1% gain. The growth leaders of 2023 participated in the 3Q advance, but Information Technology was at the back of the pack. The sector advanced less than 1% in 3Q24. Communication Services rose a rounded 6%, which was close to mid-pack. The other growth sector from 2023, Consumer Discretionary, surged 10% in 3Q24 after being up just 2% at mid-year. Plainly, sentiment toward the sector has improved on the belief that lower rates will help sales of homes and vehicles going forward. Financial was next in line, rallying 9% on hopes for continued progress in fee-based revenues. Two traditional defensive sectors, Consumer Staples and Healthcare, logged 3Q gains of 8% and 6%, respectively. Materials rose 7%, with much of the gain back-weighted to September following news of China’s stimulus plan. The lone negative sector in 3Q24 was Energy, which dropped 4%. Energy stocks rallied in the first half partly on expectations that the worsening situation in the Middle East, along with hurricanes in the Gulf of Mexico, would push up oil prices. But benchmark NYMEX crude finished 3Q24 at $67 per barrel, down from $81 at mid-year. Sector Performance for 2024 Year to Date As of 9/30/24, the S&P 500 was up 20.8% on a capital-appreciation basis and up 22.1% on a total-return basis (assuming reinvestment

United Parcel Service Inc (NYSE:UPS) shares are trading higher after the company reported better-than-expected third-quarter results.

UPS reported consolidated revenue growth of 5.6% year-over-year to $22.2 billion, beating the consensus of $22.14 billion.

Adjusted EPS was $1.76, up 12.1% YoY, above the consensus of $1.63.

GAAP results for the quarter reflect a net after-tax benefit of $36 million, or $0.04 per share, driven by a $152 million gain from the Coyote Logistics divestiture, offset by $116 million in transformation costs.

Consolidated operating profit rose 47.8% YoY to $1.983 billion and +22.8% on an adjusted basis. Adjusted operating margin stood at 8.9%, up from 7.7% a year ago.

Related: UPS Q3 Earnings Preview: Delivery Giant Aims To End Revenue Misses As Stock Remains ‘Stuck In A Two-Year Downtrend’

U.S. Domestic Segment revenue increased 5.8% to $14.45 billion, reflecting a 6.5% increase in average daily volume. The adjusted operating margin stood at 6.7%.

International Segment revenue grew 3.4% to $4.41 billion, reflecting a 2.5% increase in revenue per piece. The adjusted operating margin was 18%.

Supply Chain Solutions Segment revenue increased by 8% to $3.384 billion, reflecting growth in air and ocean forwarding and the continued onboarding of USPS air cargo. The adjusted operating margin was 6.4%.

UPS’ operating cash flow for nine months ended September 30, 2024, totaled $6.807 billion, and free cash flow was $4.038 billion.

2024 Outlook, updated: UPS now expects revenue of ~ $91.1 billion (prior expectation ~$93 billion) versus the $91.851 billion consensus and sees an adjusted operating margin of 9.6% (prior view 9.4%)

UPS continues to expect 2024 capital expenditures of about $4 billion. The company expects dividend payments of $5.4 billion, subject to Board approval.

Price Action: UPS shares are trading higher by 8.43% at $142.49 premarket at the last check Thursday.

Photo via Shutterstock

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This article Delivery Giant UPS Breaks Revenue-Miss Streak After 10 Quarters, Stock Soars originally appeared on Benzinga.com

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(Bloomberg) — Stocks rose for the first time this week, with traders parsing a slew of corporate results for clues on the health of the world’s largest economy. Treasuries were little changed after days of losses.

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Big tech led gains in equities as Tesla Inc. surged 16% after the carmaker reported surprisingly strong earnings and forecast as much as 30% growth in vehicle sales next year. United Parcel Service Inc. — a barometer of economic activity — jumped 5% after returning to sales and profit growth for the first time in nearly two years. Boeing Co. dropped 2.5% as factory workers rejected the latest offer aimed at ending a strike.

“Despite the possibility of more volatility as we get deeper into earnings season and close in on the November election, the market’s longer-term outlook remains solid,” sais Daniel Skelly at Morgan Stanley’s Wealth Management Market Research & Strategy team.

The market barely budged after Thursday’s economic data, with new home sales beating estimates, initial jobless claims dropping and business activity expanding at a solid pace.

“Goldilocks data that’s in-line with expectations (so not too good or too bad) is the best outcome for a continued rebound in stocks and bonds today,” said Tom Essaye at The Sevens Report.

The S&P 500 rose 0.3%. The Nasdaq 100 climbed 0.7%. The Dow Jones Industrial Average fell 0.2%. Treasury 10-year yields declined one basis point to 4.23%.

This week’s equity slide did little to dent the wall of bullish technical signals built up around the S&P 500 Index. The US stock benchmark continues to trade comfortably above its 200-day moving average, clocking 245 straight days above the closely watched long-term line on Wednesday.

In the prior 13 instances when the S&P 500 closed above its 200-day average for at least 242 consecutive days, with the index less than 3% below a record, the gauge proceeded to post a median gain of 7.2% in the next six months, advancing in all but two cases, SentimenTrader’s analysis found.

“Near term, pullbacks/profit-taking should be expected given the uncertainties around the upcoming US presidential election, geopolitical uncertainty, and the earnings parade,” said Craig Johnson at Piper Sandler. “No change to our 2024 year end S&P 500 price objective of 6,100.”

Story Continues

The U.S. presidential election is just days away. Vice President Kamala Harris and former President Donald Trump tied in the polls and the election is likely going to come down to the wire.

Investors are thinking about the outcome and trying to position their portfolios for either a quick gain after the results or creating a longer-term strategy based on which candidate will win and which party will control Congress. Billionaire investor Bill Ackman and his fund Pershing Square Holdings are among these investors and hold positions that could swing one way or the other based on whether Harris or Trump wins. Here’s Bill Ackman’s $277 million bet on the election.

In 2013, Pershing Square purchased a roughly 10% stake in two government-sponsored entities (GSEs): the Federal National Mortgage Association (OTC: FNMA), known as Fannie Mae, and the Federal Home Loan Mortgage Corporation (OTC: FMCC), known as Freddie Mac. Both Fannie and Freddie securitize mortgages and sell them to investors, providing the mortgage market with a vital source of liquidity. They enable banks and other lenders to get mortgages off their balance sheets and make more mortgages so they can always meet demand.

However, the two got caught holding too many subprime mortgages during the housing crisis of the Great Recession. The U.S. Treasury Department would go on to inject capital into both of the GSEs and take them into conservatorship. Shareholders have seen the stocks of Freddie and Fannie, which now trade on the over-the-counter market, plummet since the Great Recession.

During the last decade-plus, shareholders and contrarians like Ackman have endlessly speculated that the government might eventually release the GSEs from conservatorship and recapitalize them. Since the Treasury Department injected $187 billion into the GSEs after the subprime mortgage crisis, the GSEs have returned more than $300 billion in profits through an agreement with the Treasury, which ended in 2019. The Treasury also holds billions of dollars of Fannie and Freddie senior preferred stock and warrants that expire in 2028

In 2019, the GSEs were allowed to start building capital to reach new capital requirements needed to exit conservatorship and recapitalize. This event could lead to big gains for existing common and junior preferred stockholders. But the path forward is uncertain. Although the GSEs are building capital quickly, they still face a big deficit that is made even larger by the overhang of the Treasury’s senior preferred stock and warrants. The process would likely culminate in a huge initial public offering (IPO) to bridge the gap, but it’s unclear how existing shareholders, the senior preferred stock, and warrants would be dealt with in such an event.

Story Continues

Required minimum distributions, or RMDs, are a problem for some retirees. If that’s your situation, a Roth conversion may be able to help.

The advantage to switching your money from a pre-tax portfolio, like a traditional IRA, to a post-tax Roth IRA is an end to RMD concerns. Since you’ve already paid taxes on the money in a Roth account, the IRS does not require minimum withdrawals.

The disadvantage is that you have to pay taxes up front, when you convert the funds. Depending on your tax situation, in the long run this may end up costing you more than the collected value of the RMD tax events.

For example, say that you’re 60 years old. Retirement is seven years away and you’re sitting on a $1.1 million IRA. Should you start converting money to a Roth account to avoid RMDs?

Here are a few things to consider. And you can always talk to a financial advisor about your own situation.

Starting at the age of 73, your pre-tax retirement portfolio is subject to a required minimum distribution or “RMD.” This is the minimum amount that you must withdraw from the portfolio and pay income taxes on each year. The purpose is to ensure that you eventually pay taxes on this money, and it means that retirees cannot simply leave unneeded money in place to accumulate value.

The amount you must withdraw is based on the portfolio’s value and your age. The rule applies per-portfolio, not per-individual. For example, if you hold both a 401(k) and a traditional IRA you would need to take RMDs from each.

Take our case above. You’re 60 years old with $1.1 million in an IRA. Say that you were to leave that money alone, with no additional contributions and a balanced, 8% growth rate. By age 73 this IRA could be worth about $2.99 million, and the IRS would require you to withdraw $112,890 and pay at least $17,000 in taxes.

One way to avoid this is by converting your money to a Roth IRA, because RMDs don’t apply to those accounts. If you have questions about your own retirement taxes, get matched with a fiduciary advisor.

A Roth conversion is when you move money from a pre-tax retirement portfolio, like a traditional IRA, to a post-tax Roth IRA. There are two main advantages to this. First, you withdraw money from a Roth account entirely tax-free in retirement. This includes both gains and principal. Second, Roth accounts are exempted from RMD rules. You can leave this money in place until you need it.

The main disadvantage to a Roth conversion is up-front taxes. When you convert money to a Roth IRA, you must pay income taxes on the entire amount converted in the year you make the conversion.

Story Continues

Tesla stock (TSLA) surged on Thursday after mixed third quarter earnings results after the bell on Wednesday.

Investors cheered beats on adjusted earnings per share and higher gross margins in addition to the news that Tesla’s cheaper electric vehicle is on track for production next year. CEO Elon Musk also said on an earnings call that Tesla’s volume growth could be 20%-30% next year.

Tesla shares rose 14% in early trading, setting up to add tens of billions of dollars to the company’s market valuation.

Tesla reported revenue of $25.18 billion, which was lower than the $25.4 billion expected per Bloomberg consensus but higher than the $25.05 billion it reported in Q2 and also topped the $23.4 billion Tesla reported a year ago. Tesla posted adjusted earnings per share of $0.72 vs. $0.60 expected, on adjusted net income of $2.5 billion and free cash flow of $2.9 billion.

The closely watched gross margin figure came in at 19.8%, much higher than the 16.8% expected.

“We delivered strong results in Q3 with growth in vehicle deliveries both sequentially and year-on-year, resulting in record third-quarter volumes,” the company said in its earnings deck. “Preparations remain underway for our offering of new vehicles — including more affordable models — which we will begin launching in the first half of 2025.”

Earlier this month, Tesla announced third quarter deliveries that slightly missed expectations, sending the stock lower.

Tesla said it delivered 462,890 vehicles in Q3, up 6.4% quarter over quarter, to mark the first quarter of delivery growth this year. The numbers also came in ahead of the 435,059 EVs the company delivered in the year-ago period. But Wall Street had expected Tesla to deliver closer to 463,897, according to Bloomberg.

“Refreshed Model 3 ramp continued successfully in Q3 with higher total production and lower cost of goods sold quarter-over-quarter. Cybertruck production increased sequentially and achieved a positive gross margin for the first time,” Tesla said in its report.

Tesla said it expects vehicle deliveries to achieve “slight growth” in 2024. CEO Elon Musk added during the conference call that 20%-30% growth next year is possible, though he couched it as a “best guess.”

Ahead of Tesla’s Q3 disclosure, shares were down approximately 11% since Tesla revealed its robotaxi, dubbed the Cybercab, at its showy “We, Robot” event at the Warner Bros. studio lot in Burbank, Calif., on Oct. 10.

Investors and analysts were left wanting more details from Tesla’s “We, Robot” event on the Cybercab itself and detailed testing plans, along with questions about the development of Tesla’s sub-$30,000 EV, dubbed the Model 2.

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On the conference call, Musk said the Cybercab would reach volume production in 2026, not just start production, and the company aims for 2 million Tesla Cybercabs per year.

Tesla and Musk added the company remains on track for the production of new vehicles, likely including a cheaper EV, in the first half of next year.

Musk also said that the company is testing robotaxi summoning and drives in the San Francisco area for employees, with safety drivers at the wheel.

Tesla reported that its Energy Generation and Storage business hit a record gross margin of 30.5% in Q3 and that it expects the business to more than double year over year in 2024.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on X and on Instagram.

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