Market Snapshot
| Dow | 44722.06 | -138.25 | (-0.31%) | | Nasdaq | 19059.20 | -115.10 | (-0.60%) | | SP 500 | 5998.74 | -22.89 | (-0.38%) | | 10-yr Note | +27/32 | 4.24 |
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| | NYSE | Adv 1635 | Dec 1085 | Vol 838 mln | | Nasdaq | Adv 2342 | Dec 1916 | Vol 5.6 bln |
Industry Watch
| Strong: Real Estate, Financials, Health Care |
| | Weak: Information Technology, Consumer Discretionary, Communication Services |
Moving the Market
-- Reacting to a huge batch of economic releases, including the Fed's preferred gauge on inflation (core-PCE Price Index)
-- Not a lot of conviction in front of holiday break; Markets are closed tomorrow for Thanksgiving and close early on Friday
-- Losses in mega caps and chipmakers limiting broader equity market
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Closing Summary
27-Nov-24 16:20 ET
Dow -138.25 at 44722.06, Nasdaq -115.10 at 19059.20, S&P -22.89 at 5998.74
[BRIEFING.COM] Today's trade was somewhat mixed with investors lacking conviction in front of tomorrow's Thanksgiving closure. The S&P 500 dropped 0.4%, the Nasdaq Composite declined 0.6%, and the Dow Jones Industrial Average logged a 0.3% decline, yet market breadth was positive.
Advancers led decliners by a 3-to-2 margin at the NYSE and by a 4-to-3 margin at the Nasdaq. Small cap stocks were favored, leading the Russell 2000 to close 0.1% higher, while money rotated away from mega caps, technology stocks, and chipmakers. This rotation has been a consistent theme throughout November, contributing to a 10.5% gain for the small-cap index since October. The market-cap weighted S&P 500 sits on a 5.1% gain this month.
The outperformance of the small cap index was attributed in part to economic data this morning that was largely favorable for the U.S. growth outlook. Meanwhile, the weakness in technology names followed disappointing earnings reports and/or guidance from companies such as Dell (DELL 124.38, -17.36, -12.3%), Autodesk (ADSK 290.64, -27.32, -8.6%), CrowdStrike (CRWD 347.56, -16.71, -4.6%), and Workday (WDAY 253.40, -16.79, -6.2%). Additionally, some of the weakness in tech stocks reflects profit-taking, as many companies in the sector have posted substantial gains since the beginning of the year.
This morning's data featured a PCE price inflation that was a bit sticky in October above the Fed's 2.0% target, but real disposable personal income increased 0.4%, weekly initial jobless claims were encouraging with a low reading of just 213,000, and pending home sales jumped 2.0% in October.
Treasuries settled with gains in response to the data, and in reaction to today's strong $44 billion 7-yr note auction. The 10-yr yield dropped six basis points to 4.24% and the 2-yr yield dropped four basis points to 4.21%.
The aforementioned weakness in technology names led the S&P 500 information technology sector to close 1.2% lower. On the flip side, the drop in rates contributed to the move in the real estate sector, which logged a 0.7% gain.
- Nasdaq Composite: +27.0%
- S&P 500: +25.8%
- S&P Midcap 400: +20.9%
- Russell 2000: +19.7%
- Dow Jones Industrial Average: +18.7%
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 6.3%; Prior 1.7%
- October Personal Income 0.6% (Briefing.com consensus 0.3%); Prior 0.3%, October Personal Spending 0.4% (Briefing.com consensus 0.2%); Prior was revised to 0.6% from 0.5%, October PCE Prices 0.2% (Briefing.com consensus 0.2%); Prior 0.2%, October PCE Price - Core 0.3% (Briefing.com consensus 0.3%); Prior 0.3%
- The key takeaway from the report is the absence of disinflation in the PCE price indexes on a year-over-year basis. That wasn't necessarily a surprise given that the monthly readings were in-line with estimates, yet it will keep the Fed inclined to take a more gradual approach to cutting the target range for the fed funds rate.
- Weekly Initial Claims 213K (Briefing.com consensus 217K); Prior was revised to 215K from 213K, Weekly Continuing Claims 1.907 mln; Prior was revised to 1.898 mln from 1.908 mln
- The key takeaway from the report is the much the same: employers are reluctant to let employees go, but for employees let go it is becoming more challenging to find a new job.
- October Durable Orders 0.2% (Briefing.com consensus 0.4%); Prior was revised to -0.4% from -0.8%, October Durable Goods - ex transportation 0.1% (Briefing.com consensus 0.3%); Prior 0.4%
- The key takeaway from the report is that it showed some softness in business spending in October, evidenced by a 0.2% decline in new orders for nondefense capital goods excluding aircraft -- a proxy for business spending.
- October Adv. Intl. Trade in Goods -$99.1 bln; Prior was revised to -$108.7 bln from -$108.2 bln
- October Adv. Retail Inventories 0.1%; Prior was revised to 0.6% from 0.8%
- October Adv. Wholesale Inventories 0.2%; Prior was revised to -0.2% from -0.1%
- Q3 GDP - Second Estimate 2.8% (Briefing.com consensus 2.8%); Prior 2.8%, Q3 GDP Deflator - Second Estimate 1.9% (Briefing.com consensus 1.8%); Prior 1.8%
- The key takeaway from the report is that there was a modest downward revision to personal consumption expenditures, yet that did not alter the fact that personal spending was quite healthy in the third quarter.
- November Chicago PMI 40.2 (Briefing.com consensus 45.0); Prior 41.6
- October Pending Home Sales 2.0% (Briefing.com consensus -1.5%); Prior was revised to 7.5% from 7.4%
Treasuries settle with gains
27-Nov-24 15:35 ET
Dow -138.88 at 44721.43, Nasdaq -128.20 at 19046.10, S&P -25.52 at 5996.11
[BRIEFING.COM] The market continues to move sideways into the close.
Treasuries settled with gains after a huge batch of economic news. The 10-yr yield dropped six basis points to 4.24% and the 2-yr yield dropped four basis points to 4.21%. Today's data included an unrevised second reading of Q3 GDP (2.8%), a dip in weekly jobless claims (to 213,000 from 215,000), and below-consensus growth in Durable Orders for October (0.2%; Briefing.com consensus 0.4%).
This was followed by a strong Pending Home Sales report (2.0%; Briefing.com consensus -1.5%) for October and stronger-than-expected Personal Income (0.6%; Briefing.com consensus 0.3%) and Personal Spending (0.4%; Briefing.com consensus 0.2%), coupled with an upward revision to September's Personal Spending (to 0.6% from 0.5%). The Core PCE Price Index was up an in-line 0.3%, which lifted the yr/yr growth rate to 2.8% from 2.7%.
The Treasury market was also responding to a strong $44 billion 7-yr note auction.
Stocks move sideways in front of the close
27-Nov-24 15:05 ET
Dow -131.99 at 44728.32, Nasdaq -101.69 at 19072.61, S&P -20.54 at 6001.09
[BRIEFING.COM] The three major indices moved mostly sideways over the last half hour. Conviction is lacking in front of the holiday break. Markets are closed tomorrow for Thanksgiving and close early on Friday.
Chipmakers and mega caps continue to weigh down the broader equity market. The Vanguard Mega Cap Growth ETF (MGK) shows a 0.8% loss and the PHLX Semiconductor Index (SOX) sports a 1.5% decline.
The heavily-weighted S&P 500 information technology sector is buried in last place today, showing a 1.1% loss. The next worst performing sector is consumer discretionary, which is down 0.5%, followed by industrials (-0.4%) and materials (-0.1%).
S&P 500 in second place in afternoon trading
27-Nov-24 14:30 ET
Dow -124.92 at 44735.39, Nasdaq -123.64 at 19050.66, S&P -23.68 at 5997.95
[BRIEFING.COM] The S&P 500 (-0.39%) is in second place on Wednesday afternoon.
Elsewhere, S&P 500 constituents Constellation Energy (CEG 251.85, -14.88, -5.58%), Amentum Holdings (AMTM 23.65, -0.96, -3.90%), and Micron (MU 97.96, -3.84, -3.77%) pepper the bottom of the standings. CEG gives back the majority of yesterday's rally to four-week highs, while AMTM leads business services stocks lower, and MU is dragged lower on general weakness in technology.
Meanwhile, AES Corp. (AES 13.08, +0.50, +3.98%) is outperforming.
Gold higher on Wednesday as dollar softens into holiday break
27-Nov-24 14:00 ET
Dow -103.46 at 44756.85, Nasdaq -115.56 at 19058.74, S&P -19.71 at 6001.92
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.60%) hosts today's steepest losses among the major averages with about two hours to go.
Gold futures settled $18.60 higher (+0.7%) to $2,639.90/oz, rebounding from one-week lows on a weaker dollar, but inflation data limits gains.
Meanwhile, the U.S. Dollar Index is down about -0.9% to $106.01.
Workday shares clocking out with some big losses as slowing growth concerns weigh (WDAY)
Workday (WDAY) exceeded EPS expectations for the tenth consecutive quarter but shares of the HCM and financial cloud software provider are diving lower due to rising growth concerns. Although WDAY is seeing more enterprises and organizations consolidate their HR and finance functions onto its platform, moderating headcount growth and ongoing deal scrutiny continue to weigh on its growth, as illustrated by its downside Q4 and FY26 subscription revenue guidance. The good news is, WDAY's operating margins are expanding as it streamlines its operations and achieves improved efficiencies, which should continue to drive healthy EPS growth.
- Following growth of 18.8% in Q1 and an increase of 17.2% last quarter, subscription revenue growth slowed further to 15.8% in Q3 to 1.959 bln. The downward slide is expected to continue in Q4 with WDAY guiding for subscription revenue of $2.025 bln, equating to yr/yr growth of 15%. Adding to the disappointment, the company's FY26 subscription revenue guidance of $8.80 bln also fell a bit short of expectations.
- During the earnings conference call, WDAY commented that it experienced the same deal scrutiny in EMEA that it discussed last quarter. As such, international revenue growth dipped to 16% from the 18% seen in the prior two quarters. With only 25% of its total revenue coming from overseas, the company believes that it has plenty of runway for growth ahead, but market conditions have not been kind to WDAY.
- One growth catalyst that is beginning to bear fruit is WDAY's investments in AI products and features. In Q3, over 30% of the company's customer expansions involved one or more AI tools, including Talent Optimization, Extend Pro, and Recruiter Agent. With WDAY releasing Illuminate and unveiling four new AI agents in mid-September, the company is poised for even stronger AI-driven growth in the quarters ahead. Illuminate, which is powered by more than 800 bln business transactions processed by WDAY's platform annually, simplifies complex HR and finance processes, including recruiting, expense management, and succession planning.
- Lastly, while the company's subscription revenue guidance disappointed, its FY26 and FY27 non-GAAP operating margin forecasts of 27.5% and 30.0% were notable highlights. For some context, WDAY's non-GAAP operating margin in Q3 was 26.3%.
The main takeaway is that WDAY's growth rates remain on a downhill slide and until they show signs of stabilizing, the stock will likely have trouble sustaining a rally. When the company's growth rates do improve, its earnings will be primed for healthy expansion due to its streamlining efforts.
CrowdStrike gets struck down as cautious guidance sparks profit-taking pullback (CRWD)
Amid a stubbornly choppy IT spending environment, and in the wake of last July's massive outage that crashed about 8.5 mln Windows devices, cybersecurity company CrowdStrike (CRWD) displayed its resiliency once again by beating Q3 EPS and revenue expectations. Following that outage, which sent shares plummeting lower by 36% from July 18 - August 2, concerns mounted that the company would have trouble closing deals while some existing customers also migrate to competitors' platforms. However, with CRWD adding $153.0 mln in net new Annual Recurring Revenue (ARR) in the quarter for a total of $4.02 bln (+27% yr/yr), edging past analysts' estimates, it's evident that the company's efforts to mitigate the damage from the outage were effective.
- Those efforts included a new "customer commitment package" that was designed to keep its customers on board by offering incentives and discounts. While the deal has an estimated $30 mln hit to revenue for this quarter and the next, that seems to be a reasonable price to pay in the long run. That's because once customers sign on with CRWD, many become entrenched in the platform and increase their adoption. On that note, CRWD's model adoption rates grew by 31% for seven or more modules, and by 20% for eight or more modules.
- Still, the macro environment remains challenging, and visibility remains limited as enterprises continue to scrutinize spending, lengthening sales cycles. As a result, CRWD offered a cautious outlook for Q4, guiding EPS and revenue merely in line with expectations. The tepid forecast came as a disappointment, especially since competitor Qualys (QLYS) issued upside Q4 EPS and revenue guidance in early November.
- On the topic of competitors, shares of SentinelOne (S) received an initial boost in the wake of CRWD's earnings report, perhaps reflecting the idea that it managed to claw some business away from CRWD, based on CRWD's lackluster outlook. When SentinelOne reports Q3 earnings on December 4, it will become clearer whether the endpoint protection provider did pick up some market share due to the CRWD outage.
Overall, CRWD delivered another solid quarterly performance given the tough climate, while putting the tech outage in the rearview mirror. With shares surging by over 60% since the beginning of August, CRWD faced a high bar to hurdle, and its conservative guidance for Q4 is providing the impetus for a sell-the-news reaction. From a longer-term perspective, though, the company's technological competitive advantages and the ever-increasing number of threats that are only rising in complexity position it to drive healthy growth for the foreseeable future.
Dell under pressure on Q3 report, guidance weak as large customers watch near term IT spend (DELL)
Dell (DELL -12%) is under pressure today after reporting Q3 (Oct) results last night. Dell reported EPS upside that was smaller than Q2, but still solid. Revenue rose 9.5% yr/yr to $24.37 bln, which was a bit light. The silver lining is that this was Dell's largest yr/yr revenue increase in the past 10 quarters. Growth was driven by continued strength in AI and traditional servers. However, the biggest problem was downside guidance for Q4 (Jan) for both EPS and revs.
- Infrastructure Solutions Group (ISG) revenue jumped 34% yr/yr to $11.37 bln with 13.3% segment op margin vs 12.6% last year. Server and networking revenue jumped 58% yr/yr to a record $7.36 bln. Dell's AI server momentum continued and it saw a substantial expansion in its 5-quarter pipeline. Orders were a record $3.6 bln, up 11% sequentially, primarily driven by Tier 2 cloud service providers with continued growth in enterprise customers.
- Dell shipped $2.9 bln of AI servers in Q3 resulting in an AI server backlog of $4.5 bln. Its 5-quarter pipeline grew more than 50% sequentially, with growth across all customer types. Enterprises increasingly see the disruptive nature and the innovation opportunities with GenAI. Traditional server demand improved double-digits in Q3, driven by growing units and ASPs with denser core counts, memory, and storage per server. Customers are focusing on consolidation and power efficiency by modernizing their data centers with more efficient and dense 16G servers. This frees up valuable floor space and power that will support their AI infrastructure.
- Storage revenue grew 4% yr/yr to $4.00 bln. Dell says the overall demand environment in storage continues to lag that of traditional servers.
- Turning to Client Solutions Group (CSG), segment revenue declined 1% yr/yr to $12.13 bln with 5.7% op margin vs 7.5% last year, due to a more competitive pricing environment primarily in Consumer. Commercial revenue grew 3% to $10.14 bln while Consumer revenue was $1.99 bln, down 18% yr/yr. Dell said its Consumer business was weaker than expected as demand and profitability remained challenged. The PC refresh cycle is pushing into next year.
- Finally, on the downside Q4 guidance, Dell said enterprise and large customers are being more mindful of their PC and storage IT spend in the short-term. Dell expects ISG to be up mid-20s in Q4 and CSG to be up low-single digits. While Dell did not formally guide for FY26, it did say it expects multiple tailwinds going into next year, including more robust AI demand. There's also an aging install base in both PCs and traditional servers that are primed for a refresh.
Overall, investors had high hopes going into this report, but the guidance was a letdown. AI server demand looks great but Dell's comments about enterprise and large customers being more mindful near term on IT spend has spooked investors. Also, its consumer segment was weaker than expected, which was similar to what we heard from HP, Inc. (HPQ) on its earnings call last night. Dell was pretty upbeat on its Q2 call about the PC refresh cycle taking place in Q4, but now Dell says it's getting pushed into next year. Dell should see good demand next year, we just think the stock got ahead of itself in recent months heading into this report.
Best Buy is sold after registering a rare earnings miss on weaker-than-expected comps in Q3 (BBY)
Best Buy (BBY -6%) is being sold today after the consumer electronics and household appliance retailer registered its first earnings miss in five years in Q3 (Oct). The rare miss came on a wider same-store sales decline than expected, falling by -2.9%, well below BBY's prior forecast of around a -1% drop. Furthermore, although BBY has noticed improving customer demand over the past few weeks, it still lowered its FY25 financial targets.
- BBY's adjusted EPS of $1.26, missing the mark by a few pennies, stemmed from elevated promotional activity that struggled to reenergize demand. Like prior quarters, BBY continued to turn to promotions to stimulate sales growth. However, while these moves supported improving sales trends in the past, such as comps falling by just -2.3% last quarter compared to a -6.1% drop in Q1 (Apr), they no longer had the same effect in Q3.
- Customer demand softened considerably during September and October, leading to a 3.2% decrease in total revenue yr/yr to $9.45 bln, below analyst estimates. Management chalked up the deterioration to constant macroeconomic uncertainty, customers waiting on deals, and distraction during the run-up to the election. While the company anticipated lower demand between sales events, the impact was steeper than expected.
- Noticeably weak categories included appliances, home theater, and gaming, consistent with past quarters. This trend continues to spark concerns over market share loss. For instance, Costco (COST) commented that appliances enjoyed double-digit e-commerce growth in AugQ. The wholesale retailer's inclusive installation and haul-away services may be luring customers away from BBY, which charges a separate fee for similar services.
- Strength stemmed from computing, tablets, and services. Computing and tablet categories posted a combined +5.2% comp in Q3, while laptop comparable sales growth surged by +7.0%. AI PCs were not discussed much during BBY's conference call compared to previous quarters. Management briefly noted that it is in the early stages of continued AI advancement, likely spurring PC demand over the next few years.
- Following a disappointing quarter, BBY lowered its FY25 (Jan) guidance, projecting EPS of $6.10-6.25, down a dime at the high end, and revs of $41.1-41.5 bln, down from $41.3-41.9 bln. BBY also cut its comp outlook, anticipating negative 2.5-3.5% same-store sales growth compared to its previous negative 1.5-3.0% forecast.
Aside from a few silver linings surrounding computers and tablets, there was little to like in Q3. The cumulative inflationary environment extended its damage to BBY, halting the improvement in trends from Q2 (Jul). A similar dynamic unfolded at Target (TGT), which lowered its FY25 outlook last week after raising it just three months prior, citing a rapid deterioration in end-consumer demand, particularly surrounding discretionary merchandise.
BBY continues to express optimism in a broad upgrade cycle across computing and mobile phone categories, reflecting a desire to take advantage of AI features. However, sluggish growth across other categories could make it difficult for BBY to break free from its streak of yr/yr sales compression over the near term.
Burlington heads lower on Q3 results/guidance; BURL has more weather exposure than peers (BURL)
Burlington (BURL -1.3%) is heading lower following its Q3 (Oct) earnings report this morning. Following a huge beat on EPS, comps and adjusted EBIT margin in Q2 (Jul), this result was more pedestrian. Also, the stock had been running into this report, especially over the last few days. We think investors were looking for a repeat of Q2, but warm weather this fall stifled Burlington's Q3 results. Also, BURL guided Q4 EPS below analyst expectations.
- Starting with comps for this off-price retailer, they came in at +1%. This was in-line with prior guidance of +0-2%, but BURL tends to be conservative with guidance, so we view this as a letdown. The company was facing a couple of headwinds, which included a tough hurdle from +6% comps in the year ago period. Also, while Q3 comps started out very strong, warmer temperatures from mid-September onwards slowed its sales momentum.
- Notably, cold weather categories represent about 15% of sales in Q3 and Fall 2024 was significantly warmer than Fall 2023. Excluding these categories, Q3 comps would have been +4%. BURL's Q3 is typically dominated by back-to-school sales, which lasts through mid-September. After that, comp trends rely on weather.
- Importantly, Burlington is particularly sensitive to warmer weather in Q3. Remember that BURL was once called Burlington Coat Factory, so warm outerwear is still a key part of its assortment. For the full year, BURL's cold weather businesses represent almost a quarter of sales. This is significantly higher than its peers. Also, unseasonably warm temperatures do not just impact comps for cold weather merchandise. They also are also a drag on overall traffic, which affects every category.
- Looking ahead to the all-important Q4 (Jan) holiday season, BURL reaffirmed comp guidance at +0-2%. BURL is optimistic about the holidays and thus far in November, sales are ahead of plan. However, big sales weeks are still ahead of it. Also, given the late Thanksgiving, the holiday calendar is more compressed this year, which may be a headwind.
- Margins were also a bit lackluster in Q3 after huge upside in Q2. Adjusted EBIT margin in Q3 was 5.6%, an 80 bps improvement yr/yr, at the high end of +60-80 prior guidance. That pales in comparison to Q2's 160 bps improvement vs +30-50 guidance. For Q4, BURL expects a decrease of 50-80 bps.
Following Burlington's huge Q2 upside and strong reports last week from peers ROST and TJX, expectations were running high heading into this report. But these results are a reminder that BURL has much more exposure to cold weather than its off-price retail peers. At Briefing.com, we often roll our eyes when companies blame the weather because everyone is facing the same weather, but we think there is merit here. When it comes to Q4 expectations, keep an eye on the weather. If we have a cold Nov-Jan, that is good for BURL and could mean upside, especially because BURL is lapping a winter that was pretty mild last year. Cold weather might be a better predictor that peer performance.
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