How 'Durable' Is the Economy? Also, Taiwan Semi Makes It in U.S., But No Lux Purse Deal
What will the durable goods orders tell us today? And what just happened between Jimmy Choo and Kate Spade?
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It has been a quiet week for those of us who enjoy digging into the macro. This morning, at least, that will change, as things heat up with the Census Bureau's release of its September report on durable goods orders. What macro had been released this week had been rather negative until Thursday. The Conference Board started things off on Monday with its Index of Leading Indicators release for September, which printed down 0.5% on a month-over-month basis.
One might think it kind of cute how this index of 10 leading economic indicators gets very little press compared with how closely followed it was when I was a younger man. Perhaps that's because it has printed in a state of month-over-month contraction for seven consecutive months and has printed in a state of month-over-month growth for exactly one of the past 30 months. The last thing today's financial media needs or wants to do is shed light on an economic data-point that has screamed "recession" for two and a half years.
On Tuesday, the Richmond Fed Manufacturing Index crossed the tape at -14. Twelve-straight months with no growth or outright contraction out of Richmond. Guess not much was made of that one, either. September existing Home Sales, on Wednesday printed at a 14-year low. That's right. 2010. Shhh. Ridiculous.
At least on Thursday, September new home orders actually beat Wall Street's expectations and up from August. Safe to assume you heard about that. You probably did not hear that just about all of that growth was in the southern part of the nation. At least the weekly report on initial jobless claims hit the tape down 15,000 from the week prior. That was broadcast widely. What was not widely broadcast? The fact that continuing jobless claims increased by 28,000 from the week prior.
By the way ... expectations for September durable goods order are for month-over-month contraction at the headline, contraction ex-transportation, contraction ex-defense and contraction in core capital goods. You know, in case things get quiet around 08:30 ET this morning. The Atlanta Fed will revise its third-quarter GDPNow model after this release. The other Feds that run real-time gross domestic product models will revise as they usually do, over the weekend.
Tapestry's Left (Not) Holding the Bag
On Thursday evening, news broke that U.S. District Judge Jennifer Rochon blocked Tapestry's TPR $8.5 billion acquisition of Capri Holdings CPRI. Judge Rochon granted the Federal Trade Commission's motion for a preliminary injunction to block the merger. The Federal Trade Commission had sued to block this deal, on the grounds that if this combination is allowed to proceed, it would eliminate competition between Coach, Kate Spade, and Michael Kors as all of these brands focus on "accessible luxury."
For those now lost, Capri is the company formerly known as Michael Kors Holdings and includes the Jimmy Choo and Versace brands as well. Tapestry, formerly known as Coach, is the parent company of Coach, Kate Spade and Stuart Weitzman.
The two companies say that the FTC's argument is not relevant to the luxury market for handbags as they both also compete with hundreds of other handbag manufacturers overseas and that new players enter this market on a regular basis.
In response to the news, TPR is trading up almost 14%, and is trading with a $50 handle overnight. CPRI is down more than 45% overnight, trading with a $22 handle. The takeout price for this deal is or was $57, but the market must have seen this coming, as the stock had closed at $41.60 on Thursday afternoon. Is CPRI a quick grab down here?
Perhaps, on a speculative basis, but I would not think this situation resolves in a deal that closes quickly. CPRI will likely trade at a single digit multiple down here, but the balance sheet is a bit sloppy for my taste. Capri Holdings, by itself, had a cash position of $213 million as recently as June, and a current (due within 12 months) debt-load of $461 million. Additionally, 37.7% of total assets were defined as either "goodwill" or "other intangibles." I may dabble in this one for a trade, but the FTC may have done Tapestry a favor here.
Thursday on the Market
Equity markets closed mixed to higher on Thursday in a day that felt much better in real-time than it did on paper as I did my post-closing bell analysis. Perhaps that's because three smaller names that I have large, long positions in all had strong sessions. SoFi Technologies SOFI, Rocket Lab USA RKLB and Palantir Technologies PLTR were up 4.8%, 2.6% and 2.3% respectively. In fact, SOFI is now up 81.9% since its August low and thanks to the fact that we had been adding aggressively at those lower prices, the stock has surpassed Microsoft MSFT as my largest holding. Perhaps the taking of some profits are in order.
As Treasury yields contracted just a wee bit, the S&P 500 closed up 0.21%, while the Nasdaq Composite gained 0.76%. Smaller caps performed in line with the headline large cap indexes. The Russell 2000 was up 0.23% and has acted well since testing its 50-day simple moving average earlier in the week, while the S&P Midcap 400 gained 0.17%.
Five of the 11 S&P sector SPDR exchange-traded funds shaded into the green with the Discretionaries XLY way out in front at 3.15%. That was largely due to post-earnings strength in one name, Tesla TSLA, which gained 21.9% on the session. I covered those earnings on Thursday morning here at TheStreet Pro and tried to find myself a nice level to short the name in the afternoon. I am currently short the stock for a trade at an average price of $256.10.
Materials XLB were the day's losing sector, down 1.22%. Five of these sector SPDRs closed between +0.29% and -0.13% for the regular session.
Breadth
Winners beat losers at the NYSE by a rough 5 to 4 margin as advancing volume grabbed a 53.3% share of composite NYSE-listed trade, as aggregate trading volume across those listings increased by just a smidgen on day over day basis. I guess that's a mild positive.
Winners also beat losers at the Nasdaq, but by less than an 11 to 10 margin. Advancing volume did take a 59.3% share of composite Nasdaq-listed activity, but on a day over day basis, Nasdaq-listed trade in the aggregate was down 7.8%. So, not too much of a takeaway there.
For Joy, For Joy: Taiwan Semi!
Taiwan Semiconductor TSM has apparently achieved early production yields at the company's first plant in Arizona that have surpassed what similar manufacturing facilities are yielding for the company in Taiwan. What that means is that the TSM's fab plant in Phoenix is yielding usable wafers that are about 4 percentage points higher than TSM's plants in its home nation are producing.
Rick Cassidy, president of the company's U.S. division was quoted by Bloomberg news as saying, "Our fist fab entered engineering wafer production in April with 4-nanometer process technology, and the result is highly satisfactory, with a very good yield. This is an important operational milestone for TSMC and our customers, demonstrating TSMC's strong manufacturing capability and execution."
One would think this is to likely be good news for the likes of Nvidia NVDA, Apple AAPL and Advanced Micro Devices AMD, but maybe less than good news for Intel's INTC struggling foundry business.
Economics (All Times Eastern)
08:30 a.m. - Durable Goods Orders (Sep): Expecting -0.8% m/m, Last 0.0% m/m.
08:30 - ex-Transportation (Sep): Expecting -0.2% m/m, Last 0.5% m/m.
08:30 - ex-Defense (Sep): Expecting -0.7% m/m, Last -0.2% m/m.
08:30 - Core Capital Goods (Sep): Expecting -0.3% m/m, Last 0.2% m/m.
10:00 - U of M Consumer Sentiment (Oct-F): Flashed 68.9.
10:00 - U of M One Year Inflation Expectations (Oct-F): Flashed 2.9%.
10:00 - U of M Five Year Inflation Expectations (Oct-F): Flashed 3.0%.
1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 585.
1:00 - Baker Hughes Oil Rig Count (Weekly): Last 482.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: AN (4.41), BAH (1.49), CL (.88), HCA (4.98)
At the time of publication, Guilfoyle was long SOFI, RKLB, PLTR, MSFT, NVDA, AMD, INTC equity. Short TSLA equity.
