Shopify (SHOP) Shares Surge After Q3 Earnings: Time to Buy?

The S&P 500 Index Tuesday closed down -0.29%, the Dow Jones Industrials Index closed down -0.86%, and the Nasdaq 100 Index closed down -0.17%.

Stock indexes settled moderately lower on Tuesday as they consolidated the past week’s rally to record highs. Higher bond yields Tuesday fueled some profit-taking pressures in stocks following five straight sessions of gains. Also, long liquidation in stocks ahead of Wednesday's US consumer price report weighed on the overall market.

Stocks have rallied sharply over the past week, with the S&P 500, Dow Jones Industrials, and the Nasdaq 100 posting new record highs on speculation President-elect Trump will boost corporate profits through tax cuts and reduced regulation.

Positive Fed comments on Tuesday were bullish for stocks. Richmond Fed President Barkin said the US economy looks "pretty good," and the Fed is in a position to respond however the economy evolves. Also, Minneapolis Fed President Kashkari said only inflation could derail a Fed rate cut in December, and "if we saw inflation surprises to the upside between now and then, that might give us pause."

The markets are looking ahead to Wednesday’s US consumer price report for October, with Oct CPI expected to climb to +2.6% y/y, up from +2.4% y/y in Sep, and core Oct CPI expected to remain unchanged from Sep at +3.3% y/y. Also, Friday’s report on retail sales will be looked at to see if consumer spending is holding up. Oct retail sales are expected to be up +0.3% m/m, and Oct retail sales ex-autos are also expected to be up +0.3% m/m.

Of the 85% of companies in the S&P 500 that have released Q3 earnings so far, 75% surpassed the estimates, slightly below the 3-year average. According to Bloomberg Intelligence, companies in the S&P 500 have reported an average +8.4% y/y increase in quarterly earnings in Q3, more than double the preseason forecast.

The markets are discounting the chances at 62% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets Tuesday settled lower. The Euro Stoxx 50 tumbled to a 2-month low and closed down -2.25%. China's Shanghai Composite Index closed down -1.39%. Japan's Nikkei Stock 225 closed down -0.40%.

Interest Rates

December 10-year T-notes (ZNZ24) Tuesday closed down by -15.5 ticks. The 10-year T-note yield rose +13.1 bp to 4.435%. T-notes were under pressure Tuesday from carryover weakness in European government bonds. Also, upbeat comments Tuesday from Richmond Fed President Barkin curbed safe-haven demand for T-notes when he said the US economy looks "pretty good." In addition, concerns about inflationary pressures of future policies from President-elect Trump are weighing on T-notes.

European government bond yields Tuesday moved higher. The 10-year German bund yield rebounded from a 1-1/2 week low of 2.299% and finished up +3.6 bp to 2.362%. The 10-year UK gilt yield rose +7.4 bp to 4.499%.

The German Nov ZEW survey expectations of economic growth unexpectedly fell -3.7 to 7.4 versus expectations of an increase to 13.2.

ECB Governing Council member Rehn said disinflation in the Eurozone is "well on track," and the growth outlook "seems to be weakening," and "that strengthens the case for an ECB rate cut in December."

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 23% for a -50 bp rate cut at the same meeting.

US Stock Movers

Mosaic closed down more than -7% to lead losers in the S&P 500 after reporting Q3 net sales of $2.8 billion, weaker than the consensus of $3.14 billion.

GE Vernova closed down more than -7% after the Financial Times reported that CEO Strazik said the company plans to postpone searching for new offshore turbine orders until market conditions improve.

Home builders retreated Tuesday after the 10-year T-note yield jumped more than +13 bp, which boosts mortgage rates and is negative for housing demand. As a result, PulteGroup , Lennar , DR Horton , and Toll Brothers closed down more than -3%.

Elevance Health closed down more than -2% after the CFO said he sees pressure in Medicaid persisting in 2025 and sees Medicare Advantage margins missing their 2025 targets.

Neurogene closed down more than -43% after a disclosure indicated an emerging serious adverse event in a trial participant for the experimental Rett syndrome drug.

Alnylam Pharmaceuticals closed down more than -3% after Wolfe Research downgraded the stock to underperform from peer perform with a price target of $205.

Knight-Swift Transportation Holdings closed down more than -4% after Citigroup downgraded the stock to sell from neutral with a price target of $56.

Airbnb closed down more than -2% after Phillip Securities downgraded the stock to reduce from neutral with a price target of $120.

Tyson Foods closed up more than +6% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of 92 cents, stronger than the consensus of 72 cents.

Honeywell International closed up more than +3% to lead gainers in the Dow Jones Industrials and Nasdaq 100 after Elliot Investment Management said it built a $5 billion stake in the company and is calling for a breakup of the company.

Live Nation Entertainment closed up more than +4% after reporting Q3 adjusted operating income of $909.8 million, stronger than the consensus of $856.6 million.

Nvidia closed up more than +2% after Redburn initiated coverage on the stock with a buy recommendation and a price target of $178.

Shopify closed up more than +21% after reporting Q3 revenue of $2.16 billion, better than the consensus of $2.12 billion.

Twilio closed up more than +2% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $120.

Molson Coors Beverage closed up more than +2% after JPMorgan Chase said the latest data showed improving trends for the company as the latest 4-week trend to November 2 saw dollar takeaway down -1.9%, an improvement of 200 bp over the prior 4-week period.

Earnings Reports (11/13/2024)

Cisco Systems Inc (CSCO), Loar Holdings Inc (LOAR), NU Holdings Ltd/Cayman Islands (NU), Tetra Tech Inc (TTEK).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.

The Toronto Stock Exchange closed at a record high on Tuesday, pushed up as investors continue to add risk following the U.S. elections while Shopify rose 21% following its third-quarter earnings release.

The S&P/TSX Composite Index closed up 133.73 points to 24,923.01, topping the prior high of 24,845,93 on Nov.7. Information Technology, up 6.38%, was the day's biggest gainer following Shopify's results, while Base and Battery Metals, down 2.3%, were the biggest decliners.

Shopify closed up $26.89 to $152.26, its highest since January, 2022. National Bank Financial reiterated its outperform rating on the shares while boosting its price target to US$140.00 from US$100.00.

"Shopify reported strong FQ3 results. While revenue was essentially in line - profitability was firmly ahead of expectations. Importantly, that profitability was confirmation of the company's narrative this past year towards (increased) capital discipline which began less than a year ago at the company's investor day when it laid out a number of initiatives in that effort. The FQ3 results (and outlook) confirmed that narrative," the investment bank wrote.

West Texas Intermediate (WTI) crude oil closed with a minor gain on Tuesday, rebounding from two losing sessions that pushed prices 6% lower, even after OPEC again lowered its demand forecast for this year and next.

WTI crude for December delivery closed up US$0.08 to settle at US$68.12 per barrel, while January Brent crude, the global benchmark, closed up US$0.06 to US$71.89.

Gold traded late afternoon on Tuesday as the dollar and treasury yields continued their post-election advance. Gold for December delivery was last seen down US$10.60 to US$2,607.10 per ounce.

Scotiabank today noted new data that confirms most Canadian households are "holding up," albeit "not all." For the first time since 2019, the bank said, Canada provided a more granular look at the financial health of households with the release of the 2023 Survey of Financial Security. Scotia added it corroborates its earlier effort to piece together such a picture using more timely but aggregated data.

According to Scotia, "the picture is remarkable". It noted the median net worth of all households jumped by over a third, to $520,000, in 2023 relative to its pre-pandemic, inflation-adjusted level. The imputed annual pace of wealth accumulation at 8% was twice the average of the previous two decades. And, it also noted, survey data would already reflect house price corrections that occurred mostly in 2022.

But, Scotia said, there are new cracks emerging. It noted private pension assets largely flatlined for the first time ever with a serious contraction in employee-sponsored pension assets, masked by otherwise exceptional financial asset gains. It also noted lifetime renters also continue to confront compounding vulnerabilities, though the statistical agency notes more young households are amassing wealth outside home ownership.

"Sentiment remains weak and these data points are not going to tip the balance. Nor are they likely to repeat given exceptional pandemic related drivers behind the broad based gains," Scotia said, before adding, "Policymakers should double-down on fixing the cracks — not plastering the walls — while reinforcing the foundational drivers of sustainable wealth creation."

Consumer stocks were mixed late Tuesday afternoon, with the Consumer Staples Select Sector SPDR Fund (XLP) increasing 0.3% and the Consumer Discretionary Select Sector SPDR Fund (XLY) falling 1.2%.

Redbook US same-store sales last week rose 4.8% from a year earlier, below the 6% increase in the previous week.

In corporate news, Live Nation shares jumped 4.5%, a day after the company reported strong demand in the current quarter and into 2025 for its Ticketmaster sales segment.

TreeHouse Foods shares tumbled past 13%. The company lowered its full-year core profitability outlook on Tuesday as its Q3 results trailed market expectations amid a product recall and volume declines.

Shopify shares surged 22% after its Q3 revenue increased more than Wall Street's expectations amid double-digit gross merchandise volume gains.

Tyson Foods surpassed top- and bottom-line expectations for its fiscal Q4 on Tuesday, while it issued guidance implying a slight cooldown in sales in the new year amid ongoing uncertainties with its beef business. Its shares popped past 6%.