Market Snapshot
briefing.com
| Dow | 32577.47 | +378.00 | (1.17%) | | Nasdaq | 12163.79 | +131.40 | (1.09%) | | SP 500 | 4074.56 | +50.88 | (1.26%) | | 10-yr Note |
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| | NYSE | Adv 2337 | Dec 746 | Vol 515 mln | | Nasdaq | Adv 2755 | Dec 1567 | Vol 3.9 bln |
Industry Watch
| Strong: Utilities, Real Estate, Materials, Industrials, Consumer Staples |
| | Weak: Communication Services |
Moving the Market
-- Growth concerns at the forefront after larger-than-expected contraction in the advanced Q2 GDP reading
-- Disappointing earnings and guidance from Meta Platforms
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Market moves sideways into the close
28-Jul-22 15:30 ET
Dow +378.00 at 32577.47, Nasdaq +131.40 at 12163.79, S&P +50.88 at 4074.56
[BRIEFING.COM] There hasn't been much up or down movement in the market recently. The indices are sticking to a narrow range near intraday highs.
The House passed the $52 billion CHIPS Act as part of larger $280 billion legislative package designed to fend off industrial competition from China, the bill now heads to President Biden. The PHLX Semiconductor Index is up 1.3%.
After the close, Amazon (AMZN), Apple (AAPL), Deckers Outdoor (DECK), First Solar (FSLR), Intel (INTC), KLA Corporation (KLAC), Mohawk (MHK), Roku (ROKU), U.S. Steel (X), V.F. Corp (VFC), VeriSign (VRSN), and Yum China (YUMC) headline the earnings reports.
Before Friday's open, market participants will receive quarterly results from AbbVie (ABBV), Church & Dwight (CHD), Colgate-Palmolive (CL), Grainger (GWW), and Newell Brands (NWL). Also, Dow components Chevron (CVX), Exxon Mobil (XOM), and Procter & Gamble (PG).
Market participants will receive the following economic data Friday:
- 8:30 ET: June Personal Income (Briefing.com consensus 0.5%; prior 0.5%), Personal Spending (Briefing.com consensus 0.8%; prior 0.2%), PCE Prices (Briefing.com consensus 1.0%; prior 0.6%), Core PCE Prices (Briefing.com consensus 0.6%; prior 0.6%), and Q2 Employment Cost Index (Briefing.com consensus 1.1%; prior 1.4%)
- 9:45 ET: July Chicago PMI (Briefing.com consensus 56.2; prior 56.0)
- 10:00 ET: Preliminary University of Michigan Consumer Sentiment survey (Briefing.com consensus 51.1; prior 51.1)
Energy futures making downside moves
28-Jul-22 15:05 ET
Dow +386.41 at 32585.88, Nasdaq +130.71 at 12163.10, S&P +51.28 at 4074.96
[BRIEFING.COM] The main indices are moving laterally near session highs.
The S&P 500 energy sector is one of the worst performers currently, up 0.2%. It's being weighed down by Valero (VLO 107.96, -3.60, -3.2%), which has seen volatile price action today being up 3.0% this morning. The company reported better-than-expected earnings before the open. Another company that reported quarterly results last night, Hess Corp (HES 107.75, +1.08, +1.0%), is near the top of the leaderboard for the sector.
On a related note, energy futures are making downside moves. WTI crude oil futures are down 0.5% to $96.80/bbl. Natural gas futures futures are down 4.8% to $8.14/mmbtu. Unleaded gasoline futures are down 1.4% to $3.11/gal.
Old Dominion recovers from yesterday's post-earnings doldrums; SWK slips following results
28-Jul-22 14:30 ET
Dow +351.92 at 32551.39, Nasdaq +96.46 at 12128.85, S&P +45.71 at 4069.39
[BRIEFING.COM] The benchmark S&P 500 (+1.14%) now holds a narrow lead over the DJIA (+1.09%).
S&P 500 constituents Constellation Energy (CEG 64.56, +9.03, +16.26%), Old Dominion (ODFL 292.31, +18.83, +6.89%), and Enphase Energy (ENPH 268.95, +14.18, +5.57%) pepper the top of today's standings. ODFL recovers nicely from yesterday's post-earnings struggle, while ENPH and solar peers benefit following Inflation Reduction Act of 2022 news as well as a Credit Suisse upgrade.
Meanwhile, Stanley Black & Decker (SWK 100.36, -17.09, -14.55%) underperforms after this morning's earnings miss and guide lower.
Gold solidly higher as yields fall
28-Jul-22 14:00 ET
Dow +382.96 at 32582.43, Nasdaq +117.83 at 12150.22, S&P +50.92 at 4074.60
[BRIEFING.COM] With about two hours to go the major averages still hold near session highs, the tech-heavy Nasdaq Composite (+0.98%) the only average with gains of under 1%.
Gold futures settled $31.20 higher (+1.8%) to $1,750.30/oz, aided in part by losses in treasury yields, as prices of most commodities reacted favorably to yesterday's Fed comments. Recall, gold prices hit a 15-month low last week.
Meanwhile, the U.S. Dollar Index is little changed at $106.46.
Insurance firm Travelers underperforms in DJIA on Thursday
28-Jul-22 13:30 ET
Dow +293.32 at 32492.79, Nasdaq +75.87 at 12108.26, S&P +36.75 at 4060.43
[BRIEFING.COM] All three major averages are near session highs in recent trading, the Dow Jones Industrial Average tied for first with the S&P 500, both of which hold gains of +0.91% apiece.
A look inside the DJIA shows that Honeywell (HON 189.85, +6.19, +3.37%), Nike (NKE 111.15, +3.29, +3.05%), and Walmart (WMT 130.23, +3.64, +2.88%) are among today's top performers.
Meanwhile, insurance firm Travelers (TRV 154.95, -4.01, -2.52%) is the worst-performing component in the index.
The DJIA is now up about +3.85% week-to-date.
Elsewhere, at the top of the hour, the Treasury's $38 bln 7-year note auction drew a high yield of 2.730% on a bid-to-cover of 2.60.
Etsy crafting some nice gains as Q2 results highlight the staying power of its platform (ETSY)
Updated: 28-Jul-22 14:27 ET
Etsy (ETSY), the operator of a homemade craft and goods marketplace, is up sharply after reporting better-than-expected Q2 results and issuing inline Q3 revenue guidance. A former high-flyer during the depths of the pandemic, ETSY has fallen on harder times lately as people increasingly return to brick-and-mortar stores. In fact, during the earnings conference call, the company singled out reopening headwinds and pandemic-related factors as the biggest obstacles so far in 2022. However, ETSY's encouraging earnings report also indicates that business is still healthy, leading investors to believe that the near 60% collapse in shares this year is overdone.
Although revenue and gross merchandise sales (GMS) growth has significantly tapered off from the triple-digit rates seen in 2020 and early 2021, it's notable that ETSY is still growing despite facing challenging yr/yr comparisons. In Q2, revenue increased by 11% and GMS was up by 3% on a constant currency basis, on top of last year's growth of 24% and 13%, respectively.
The company's ability to retain positive top-line growth, unlike another pandemic darling like eBay (EBAY), is a testament to the staying power of ETSY's business. On that note, ETSY commented during the earnings conference call that it has retained the vast majority of GMS gains achieved during the pandemic surge. This is reflected in non-mask GMS decreasing by just 7% yr/yr in Q2 but remaining higher by 24% since 2Q20. Furthermore, ETSY stated that its pandemic buyers remain more valuable than pre-pandemic buyers.
There were a couple other key items from the report that caught our attention.
- Thanks to its asset-light business model and variable cost structure, ETSY's adjusted EBITDA margin expanded to 28% from 26% in the year-earlier quarter. These same attributes helped ETSY to generate strong operating cash flow of $128.5 mln.
- Like many other tech companies, ETSY is planning to slow the pace of hiring for the remainder of 2022. After increasing its headcount by 70% from last year -- partly due to its acquisitions of Depop and Elo7 -- ETSY's plan to dial back wage expenses should provide a bottom-line boost. CEO Josh Silverman expects the company to remain very profitable throughout the year, even as it contends with macroeconomic volatility and uncertainty.
The main takeaway is that while ETSY is far-removed from its booming days during the pandemic, business remains healthy as it has retained most of the GMS gains it achieved during that time. In contrast to many pandemic high-flyers, ETSY continues to consistently surpass analysts' quarterly expectations. Based on the company's solid performance, it's safe to say that the nosedive in shares since last fall was overdone.
Ford surprises investors with large EPS beat, just days after GM missed, plus a nice dividend (F)
Updated: 28-Jul-22 13:56 ET
Ford Motor (F +6%) is trading higher today after reporting a huge EPS beat for Q2 with nice revenue upside. We had concerns coming into this report after GM missed by a wide margin on Tuesday. However, Ford performed very well. Demand and the resulting order bank for its ICE (internal combustion engine) and EV vehicles was very strong and is expected to remain so.
- In addition to revenue and EPS, another key metric we watch closely is adjusted EBIT. It jumped 236% yr/yr to $3.7 bln, or 9.3% of revenue, well above analyst expectations and was nicely above Q1's $2.3 bln and 6.7% margin. Ford also reaffirmed FY22 guidance at $11.5-12.5 bln. The strong profit metrics were impressive considering that Ford concedes that supply chain disruptions remain a problem. A lack of chips is a big issue, which was exacerbated by lockdowns in China.
- On the EV side (Ford Model e), the company has been overwhelmed with demand for its first generation EVs: the Mustang Mach-E, the Lightning, and the E-Transit. These products are in the market now and have strong multiyear order banks. Ford is selling them as fast as it can make them. This month, it expects to produce 14,000 EVs globally, which is significantly higher than just a few months ago, and it expects to reach a run rate of 60,000 EVs by the end of next year.
- While Ford is focusing more on EVs, it is still excited about some new models on the ICE and hybrid side. It recently revealed new vehicles like the Bronco Raptor, the Bronco Everglades, and the F-150 Raptor R. In Q3, Ford plans to unveil its all-new seventh-generation Mustang at the North America International Auto Show in Detroit.
- The other news from Ford was that it upped its quarterly dividend by 50% to $0.15/sh, which now sports a robust annual yield of 4.4%. This fully restores the dividend to its pre-pandemic level. The extra money is great, but we think the more important takeaway is that it's a signal from management that is company is quite healthy. And Ford decided to hike despite all the macro headwinds, which makes it all the more impressive. The decision was partly based on the fact that, from 2018-21, its markets outside North America consumed nearly $9 bln of free cash flow. This year, these markets are collectively expected to be free cash flow positive.
Overall, this was a surprisingly good quarter for Ford, and all the more so after GM's big miss this week. Ford is still dealing with supply chain headaches, but seems to be managing it fairly well. Demand remains very strong, which has allowed Ford to raise prices. And we really want to stress the psychological importance of that dividend hike. Investors have been waiting for Ford to restore it to pre-pandemic levels for years as that would be a clear signal management feels confident. It is important to note that GM is still not paying a dividend at all after suspending it for the pandemic.
Qualcomm slides despite a Q3 EPS beat as softening handset demand dings Q4's profitability
Updated: 28-Jul-22 11:25 ET
Qualcomm's (QCOM -4%) earnings and revenue upside in Q3 (Jun) were positive standouts for the chip supplier, especially given headline macroeconomic hurdles. However, these hurdles, particularly inflation, are expected to worsen in Q4 (Sep), dampening consumer handset demand. With handsets making up roughly 62% of total revenue for QCOM in FY21, with radio frequency front-end components primarily used in handsets totaling an additional ~15%, the slowdown within the smartphone market is significant.
Although handset demand did not sour in Q3, evidenced by QCOM increasing handset sales 59% yr/yr to $6.1 bln, conditions have since worsened, illustrated by QCOM's Q4 (Sep) guidance. The company's adjusted EPS forecast of $3.00-3.30, which met estimates, includes an anticipated impact of $0.20 due to macroeconomic headwinds, including a reduction in global handset volumes. Drilling deeper, QCOM expects volumes to decline by mid-single-digit percentage yr/yr in CY22.
Aside from QCOM's handset woes, the company's Q3 results were still quite chipper, illuminating its success in transforming into a well-diversified semiconductor supplier.
- QCOM's other businesses demonstrated meaningful strength in Q3, including IoT (internet-of-things) and automotive, which helped drive total revenue growth of 36.7% yr/yr to $10.93 bln. Meanwhile, adjusted EPS spiked 54% yr/yr to $2.96.
- IoT revs jumped 31% yr/yr to $1.8 bln on solid performance from edge networking and industrial end markets. Chip manufacturing giant Taiwan Semi (TSM) alluded to robust IoT demand with 14% growth yr/yr in Q2, outperforming most of its other businesses.
- TSM's strong automotive sales were also emulated by QCOM, boasting another record quarter in automotive with revenue growth of 38% yr/yr to $350 mln.
- QCOM's Q4 revenue outlook of $11.0-11.8 bln, though falling just short of analyst expectations, also illustrated its solid diversification, as its other businesses are helping cushion against slowing handset demand.
- Furthermore, it is worth noting that QCOM still expects demand to remain resilient in its premium tier handsets, similar to what we saw from the PC industry, which is also experiencing softness outside premium devices.
Overall, QCOM's struggles stem almost entirely from slowing handset demand, particularly lower-tier devices. We are surprised that this was not already mostly expected, especially after what we heard from multiple companies over the past month. For example, TSM's slowest growing market was smartphones, climbing a measly 3% yr/yr. Additionally, telecom mammoth Verizon (VZ) noted last week it began offering plans without device subsidies, showing the adverse effects inflation has on its consumers' pocketbooks. Lastly, in mid-May, Hong Kong Stock Exchange-traded Semiconductor Manufacturing International Corp noted it had already adjusted its smartphone-related capacity considerably in anticipation of a slowdown in demand.
Bottom line, even though it is not showing up in the stock today, QCOM is a solid long-term choice given its ongoing move to further diversify its end markets. The company trades at an attractive 12x forward earnings and provides a 2.0% dividend yield.
Meta Platforms' results not receiving the "better-than-feared" treatment as growth vanishes (FB)
Updated: 28-Jul-22 11:11 ET
The rollercoaster ride for shares of Meta Platforms (META) continues today after the company missed Q2 EPS and revenue expectations and provided downside revenue guidance for Q3. Following Alphabet's (GOOG) better-than-feared earnings report from Tuesday night, META rallied and erased some of the losses that stemmed from Snap's (SNAP) discouraging results and outlook from a week earlier. Unlike GOOG's quarterly performance, though, investors aren't finding too much to feel good about with META's report.
For starters, META missed revenue expectations by a wide margin, while GOOG's top-line was inline with analysts' estimates. META also suffered its first yr/yr decline in revenue (-0.9%), badly lagging the 13% increase that GOOG posted. Adding salt to the wound, the mid-point of META's Q3 revenue guidance represents another yr/yr decline at -0.6%.
The discrepancy in performance is a reflection of GOOG's dominance in search and the emergence of its cloud segment, enabling it to fend off competition more effectively and to weather economic storms. On the other hand, META is a more vulnerable company that's in the midst of a major transition. Some may argue that the company took its eye off the ball as it went full steam ahead with its metaverse aspirations, creating an opening for TikTok to gain share.
Now, META is trying to dig itself out of a hole it seems, as a number of metrics and items indicate.
- Daily Active Users (DAUs) nudged higher by 3% yr/yr to 1.97 bln to edge past estimates, but Monthly Active Users (MAUs) fell by 2 mln users from last quarter to 2.93 bln. The decline adds to preexisting concerns about competition, cutting into the amount of time that people are spending on META's family of apps. In turn, if META is losing some ground to TikTok and others, then advertisers will seek lower prices.
- Relatedly, the average price per ad declined by 14% in Q2, demonstrating that advertisers are losing some confidence in their returns on investment. This drop is also attributable to Apple's (AAPL) iOS privacy changes, which has made targeted advertising very difficult to achieve. Without the ability to home in on potential customers based on their internet search activities, advertisers are seeing less value in their digital ads.
- Characterizing META as desperate is a stretch, but the company seems to be throwing darts at a dartboard in its mission to upend TikTok's momentum. For instance, the company disclosed that videos will gradually become a larger portion of content on Instagram, while Facebook users will see an increasing amount of content from accounts they don't follow. Simultaneously, META will prop up and invest heavily in Reels, its short-video app.
- META is having some success with Reels as the platform experienced a 30% jump in user engagement time in Q2. At this point, though, Reels isn't a major revenue contributor with annual sales on pace to reach about $1 bln. That may seem substantial, but it's a drop in the bucket for a company that's expected to generate revenue of $124 bln this year.
Last quarter, META received praise after it cut its FY22 expense guidance, signaling that it's re-prioritizing profit growth. META cut its expense guidance again this quarter to $85-$88 bln, but, this time, the move looks more like a necessity than a luxury. Mark Zuckerberg's dire comments about macroeconomic conditions, including his statement that the "situation seems worse than it did a quarter ago”, only adds to the angst. The main takeaway is that META is taking hits from multiple sides, some of which are self-inflicted, and some of which are completely out of its control.
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