Market Snapshot
briefing.com
| Dow | 34473.01 | -28.16 | (-0.08%) | | Nasdaq | 13491.90 | +200.74 | (1.51%) | | SP 500 | 4399.08 | +28.17 | (0.64%) | | 10-yr Note | -7/32 | 4.34 |
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| | NYSE | Adv 1090 | Dec 1787 | Vol 817 mln | | Nasdaq | Adv 2053 | Dec 2356 | Vol 4.3 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Communication Services |
| | Weak: Utilities, Real Estate, Energy, Consumer Staples, Industrials, Materials |
Moving the Market
-- Buy-the-dip action in the mega cap space
-- Rising Treasury yields keeping the stock market in check; 10-yr note yield reaches highest level since 2007 (4.35%) and 30-yr bond yield reaches highest level since 2011 (4.47%)
-- Digesting the news that the People's Bank of China lowered its one-year loan prime rate by ten basis points to 3.45% while the 5-yr rate was left unchanged at 4.20% against expectations for bigger cuts
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Closing Summary
21-Aug-23 16:25 ET
Dow -36.97 at 34464.20, Nasdaq +206.81 at 13497.97, S&P +30.06 at 4400.97
[BRIEFING.COM] Stocks had a mixed showing today in a lightly traded session. Buy-the-dip action in the mega cap space led to the outperformance of the Nasdaq Composite (+1.6%) and helped limit losses elsewhere. The major indices had been drifting lower in the early going before bouncing off their lows around 12:00 p.m. ET with no specific news to account for the improvement.
Notably, Treasury yields, which had been rising and keeping pressure on stocks, started to pullback from their highs around the same time that the stock market hit its worst levels of the session. Ultimately, the major indices settled near their best levels of the day, which had the S&P 500 just a whisker shy of 4,400. The S&P 500 hit 4,407 at its high of the day.
The 2-yr note yield settled eight basis points higher at 4.99% after reaching 5.00% earlier. The 10-yr note yield rose nine basis points to 4.34%, which is its highest level since 2007, after hitting 4.35% earlier. The 30-yr bond yield rose eight basis points to 4.46%, hitting its highest level since 2011.
Mega cap stocks, which had already been outperforming due to buy-the-dip interest and presumably some safe haven trading, drove a lot of the late afternoon rally. The Vanguard Mega Cap Growth ETF (MGK) rose 1.5% while the Invesco S&P 500 Equal Weight ETF (RSP) closed flat.
Tesla (TSLA 231.28, +15.79, +7.3%) and NVIDIA (NVDA 469.67, +36.68, +8.5%) were top performers from the mega cap space. NVDA, which reports earnings after the close on Wednesday, traded up after HSBC raised its price target to $780 from $600. TSLA, meanwhile, had declined nearly 30% since its high July 19 coming into today.
S&P 500 sector performance was mixed. Information technology (+2.3%), the most heavily weighted sector in the S&P 500, outpaced the remaining ten sectors by a decent margin. Palo Alto Networks (PANW 240.81, +31.12, +14.8%), which reported better than expected results after Friday's close, was the largest percentage gainer in the sector. The interest rate sensitive real estate sector (-0.9%) saw the largest decline in today's session.
Some angst ahead of Fed Chair Powell's speech Friday at the Jackson Hole Symposium also contributed to the weakness in the Treasury market today after a Wall Street Journal article by Nick Timiraos discussed why the neutral rate may need to be higher.
Festering concerns about China's disappointing growth remained a limiting factor for stocks today. On a related note, the People's Bank of China lowered its one-year loan prime rate by ten basis points to 3.45% while the 5-yr rate was left unchanged at 4.20% against expectations for bigger cuts.
There was no U.S. economic data of note today, but tomorrow's calendar features the Existing Home Sales report for July (Briefing.com consensus 4.15 million; prior 4.16 million) at 10:00 a.m. ET.
- Nasdaq Composite: +29.0% YTD
- S&P 500: +14.6% YTD
- S&P Midcap 400: +6.2% YTD
- Russell 2000: +5.4% YTD
- Dow Jones Industrial Average: +4.0% YTD
S&P 500 hits 4,400; Treasuries settle with losses
21-Aug-23 15:30 ET
Dow -18.92 at 34482.25, Nasdaq +204.56 at 13495.72, S&P +31.22 at 4402.13
[BRIEFING.COM] The S&P 500 reached the 4,400 level, trading near its high of the day.
Treasuries settled with losses across the curve. The 2-yr note yield rose eight basis points to 4.99%. The 10-yr note yield rose nine basis points to 4.34%, its highest level since 2007. The 30-yr bond yield rose eight basis points to 4.46%, its highest level since 2011.
Economic data tomorrow is limited to the July Existing Home Sales (Briefing.com consensus 4.15 million; prior 4.16 million) at 10:00 a.m. ET.
Market continues to climb
21-Aug-23 15:00 ET
Dow -28.16 at 34473.01, Nasdaq +200.74 at 13491.90, S&P +28.17 at 4399.08
[BRIEFING.COM] The major indices continue to climb, largely fueled by mega cap gains.
Apple (AAPL 175.69, +1.20, +0.7%) and Alphabet (GOOG 129.05, +0.96, +0.8%) had been trading down earlier, but recovered and joined the other mega caps in positive territory. The Vanguard Mega Cap Growth ETF (MGK) is up 1.5%, near its high of the day.
Also, market breadth is mixed now. Decliners had maintained a slim lead over advancers for most of the session at the Nasdaq, but now trade roughly in line with advancers. At the NYSE, decliners lead advancers by a 9-to-5 margin.
Moderna, VF Corp gain in S&P 500 to open the week
21-Aug-23 14:30 ET
Dow -85.03 at 34416.14, Nasdaq +172.32 at 13463.48, S&P +18.77 at 4389.68
[BRIEFING.COM] The S&P 500 (+0.43%) is firmly in second place to this point on Monday, up about 19 points.
S&P 500 constituents Moderna (MRNA 111.65, +10.03, +9.87%), V.F. Corp (VFC 20.57, +0.56, +2.80%), and Adobe (ADBE 520.82, +12.69, +2.50%) dot the top of today's standings. MRNA gains amid the Biden administrations latest vaccine push given data from the recent COVID variants, while VFC benefits from strong moves in consumer discretionary stocks, and ADBE caught a positive view from Barron's and the UK's CMA announced a "Notice of termination of extension" was published in the matter of ADBE's acquisition of Figma.
Meanwhile, cosmetic giant Estee Lauder (EL 150.34, -6.35, -4.05%) is at the bottom of the S&P after Wall Street analysts lowered their tgts on the stock in droves.
Gold notches back-to-back wins
21-Aug-23 14:00 ET
Dow -100.39 at 34400.78, Nasdaq +160.43 at 13451.59, S&P +16.92 at 4387.83
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+1.21%) tapped session highs, though currently trades modestly off those levels.
Gold futures settled $6.50 higher (+0.3%) to $1,923.00/oz, higher for back-to-back sessions and now about -0.33% quarter-to-date, pushing losses to about -4.29% this month.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $103.33.
Feeling a little superstitious
There is a superstition that bad things come in threes. Well, the S&P 500 and Nasdaq Composite have experienced three straight losing weeks. That is perhaps why the equity futures market is looking better this morning, thinking the "bad" stuff is over.
It is hard to say, but in any case, the S&P 500 futures are up 13 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 76 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 42 points and are trading 0.1% above fair value.
The upside buying has been driven by an inclination to buy on the weakness. It doesn't seem to be any more than that considering that market rates are moving higher, the People's Bank of China disappointed with a smaller-than-expected cut to its one-year loan prime rate and no change to its 5-year loan prime rate, and Tropical Storm Hilary has inundated Southern California with a load of disruptive rainfall.
Still, there is a bid in stocks this morning in front of a big week of news that will include results of a UAW strike authorization vote, NVIDIA's (NVDA) earnings results, existing and new home sales reports, and Fed Chair Powell's much discussed speech at the Jackson Hole Symposium on Friday.
The latter is much discussed because there is a lot of handicapping on what he might say. He might suggest the neutral rate needs to be higher; he might suggest the Fed can afford to be more watchful now of the lag effect of prior rate hikes; he might suggest that the Fed isn't even thinking of cutting rates in 2024.
It really is anyone's guess. We are guessing, however, that he won't be as terse as he was last year, warning about the pain to households and businesses that will come with the effort to bring down inflation. Rather, he may be more reflective, talking about the pain that high inflation has brought to households and businesses and that the Fed has made a lot of progress in bringing down inflation.
He won't say, however, that the work to bring down inflation is done -- and this is where most of the market-moving capacity might live. The manner in which he characterizes how much more work the Fed might have to do is what will drive the market's reaction for better or worse.
For now, the stock market is looking a little better while the Treasury market is looking a little worse. The 2-yr note yield is up six basis points to 4.97% and the 10-yr note yield is up five basis points to 4.30%.
Presumably, if the interest rate view worsens as the day progresses, the stock market view is apt to as well.
-- Patrick J. O'Hare, Briefing.com
Goldman Sachs looks to trim another underperforming business, which could provide EPS boost (GS)
Coming off one of its most difficult quarters in recent history, in which it missed Q2 earnings expectations and experienced a 20% plunge in investment banking revenue, Goldman Sachs (GS) is looking for shake-up. According to Financial Times, the financial stalwart is considering a sale of its relatively small investment advisory business called Personal Financial Management.
- The potential divestiture marks the next step in GS's strategy to cull underperforming assets that have been weighing it down. For instance, in early July, GS unloaded $1.0 bln in personal loans from its consumer-oriented Marcus unit, following the sale of other Marcus loans in Q1, which generated a loss of about $470 mln.
- Additionally, GS is seeking buyers for its online lending platform GreenSky, a Fintech company that it acquired in 2021 for more than $1.7 bln. As consumer spending has slowed amid rising interest rates and high inflation, that business has taken a hit, causing GS to take a $504 mln write-down last quarter.
- When GS purchased Personal Financial Management in 2019 -- at the time, the company was called United Capital Financial Partners -- its goal was to broaden and diversify its client base and its revenue streams.
- Although the $750 mln acquisition pales in comparison to Morgan Stanley's (MS) massive $13 bln purchase of E*Trade in 2020, the concept behind the idea was similar. However, unlike MS, which has generally benefitted from its diversification strategy, as illustrated by its top and bottom-line beat in Q2, GS's efforts have mostly gone unrewarded.
- As GS unwinds these non-core assets, its reliance on institutional and high net worth clients will escalate. Accordingly, the company's investment banking and trading operations will be asked to carry an even heavier load.
- While GS's higher exposure to these businesses worked against it over the past two years, the pendulum could swing quickly back in its favor if deal-making recovers heading into 2024.
It's also worth noting that the stock has dove lower by about 10% so far in August, depicting investors' sagging expectations and optimism in GS's near-term prospects. That weakness, combined with a potential rebound in the IPO and M&A markets and stronger earnings as it sheds these assets, could be the recipe for a turnaround in the stock.
Palo Alto Networks rises sharply on earnings; good EPS upside but deal scrutiny intensifying (PANW)
Palo Alto Networks (PANW +17%) is trading nicely higher today after reporting Q4 (Jul) results on Friday after the close. The cybersecurity giant reported a nice EPS beat with in-line revenue. The guidance was more mixed with PANW offering upside EPS but downside revs for both Q1 (Oct) and FY24. These headline numbers do not seem to warrant such a big move today, but it does make sense when you dig into it.
First off, it was unusual for PANW to schedule earnings for a Friday after the close. That led to speculation that maybe management was trying to bury bad news on a Friday night, when fewer investors would see it. While the numbers did not blow us away, they were "better than feared" given the Friday scheduling. PANW explained the timing was related to its desire to give analysts ample time to have one-on-one calls with PANW over the weekend ahead of its sales conference on Sunday. Here is what jumped out to us:
- PANW saw a significant step up in margins. Gross margin for Q4 at 77.3% increased 400+ bps yr/yr and expanded by 230 bps in FY23. PANW benefitted from a higher software mix and some scale synergies on a customer support spending. Operating margin expanded well over 700 bps in Q4 and 500+ bps for the year. This helped explain the strong EPS upside.
- PANW keeps performing well with billings. Q4 billings grew 18% yr/yr to $3.2 bln, at the high end of the $3.15-3.20 bln prior guidance. It also guided to Q1 billings growth of 17-19%, or $2.05-2.08 bln.
- Despite the nice billings growth, PANW conceded that the industry has experienced an increase in deal scrutiny, as well as deal pushouts. The environment has become more challenging this year. PANW says it got ahead of this changing environment by frontloading its sales hiring for the year and by training its sales teams to address the tougher procurement processes. As a result, PANW did not see a significant impact in Q4 from unexpected deal delays.
- However, customers are more frequently seeking deferred payment terms. The percent of bookings that included deferred payments increased ~45% yr/yr and more than doubled from Q3 to Q4. This dynamic weighed on billings. As a result, PANW now believes RPO is becoming a more important leading indicator for PANW's business because it is not impacted by billing terms.
Overall, this was a good quarter for PANW although its comments about deal scrutiny intensifying and the increased use of deferred payments gave us some pause. The outsized reaction in the shares appears to be mostly related to concerns that the unusual Friday scheduling portended a weak result. Also, the stock has been sliding since the date was announced, so it's basically just back to where it was. Finally, it has been a hit-or-miss earnings cycle for cybersecurity firms (FTNT was notable on the downside), so it was good to see PANW report EPS upside.
Acushnet continues to drive further following an upgrade at Jefferies (GOLF)
Titleist and FootJoy parent company Acushnet (GOLF +4%) has had a nice drive thus far this year, appreciating by over +25%, only to tack on additional gains after incorporating today's gap up following an upgrade to "Buy" from "Hold" at Jefferies. When stacked against some of its peers, including Callaway (MODG) and NIKE (NKE), both of which have seen their shares tumble YTD, GOLF shines even brighter.
Briefing.com notes that despite operating in a highly competitive field, saturated with plenty of privately-held companies selling at virtually every price point, as well as during an economic environment plagued by inflationary trends, GOLF has delivered consistent results, reflecting a solid competitive edge.
- This competitive edge is best illuminated by the Titleist brand. In Q2, Titleist golf balls enjoyed a 20% jump in sales yr/yr, underpinned by a successful launch of the Pro V1. Although Callaway experienced an even more significant increase in its golf ball sales in Q1, improving by over 30%, the company expects growth to cool during the back half of the year. Meanwhile, GOLF mentioned that the positive golf ball sales momentum should continue through the second half of 2023, even as supply chain constraints keep its Pro V1 lineup in short supply.
- This upbeat momentum was a primary contributor to GOLF's increased FY23 guidance. The company expects FY23 revs of $2.35-2.40 bln, up from $2.33-2.38 bln, a divergence from Callaway, which reaffirmed its previously reduced FY23 outlook.
- Titleist also offers clubs. Even as current economic conditions clip discretionary spending, golf club sales were healthy in Q2, climbing 16% yr/yr, far superior to Callaway, which endured a 7% dip in club sales during the quarter. Titleist is well known for its putters and drivers; these two clubs underscored the company's solid sales in Q2, while wedges and irons have met expectations.
- One of GOLF's weak spots has been FootJoy, a prominent golf apparel retailer. Like other apparel firms, FootJoy's sales have lagged lately due to a broader slowdown in footwear, dropping 10% yr/yr in Q2. Performance at FootJoy is only set to remain relatively poor, with GOLF tempering its FY23 outlook for the brand given elevated inventories, which will be accompanied by heightened promotional activity. Callaway did not offer much color on how its apparel business might perform in 2H23, only noting that it will also be staring at more promotional activity.
The golf industry has remained healthy, despite golfers returning to many pre-COVID activities. A shift in consumer tastes toward services amid sticky inflation keeps golfing nicely above 2019 levels, thus sustaining double-digit growth across GOLF's club and ball sales. Also, as a testament to GOLF's competitive advantage, its clubs outperform one of its key rivals, potentially adding to its market share. At the same time, unlike Callaway, GOLF's Titleist balls are projected to sustain their momentum through the remainder of the year, likely contributing to additional market share gains and further cementing its leadership position in the golf industry.
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