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Market Snapshot
briefing.com
| Dow | 33311.39 | +535.10 | (1.63%) | | Nasdaq | 12854.76 | +360.88 | (2.89%) | | SP 500 | 4210.31 | +87.77 | (2.13%) | | 10-yr Note |
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| | NYSE | Adv 2680 | Dec 465 | Vol 908 mln | | Nasdaq | Adv 3278 | Dec 1142 | Vol 5.0 bln |
Industry Watch
| Strong: Communication Services, Materials, Consumer Discretionary, Information Technology, Financials |
| | Weak: -- |
Moving the Market
-- Cooler-than-expected July CPI data
-- Expectation that Fed will pivot sooner rather than later
-- Upside leadership from mega caps
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Closing Summary
10-Aug-22 16:25 ET
Dow +535.10 at 33311.39, Nasdaq +360.88 at 12854.76, S&P +87.77 at 4210.31
[BRIEFING.COM] Cooler-than-expected CPI data sent the stock market higher today. The three main indices saw some up and down price action but ultimately closed with sizable gains. The Nasdaq and S&P 500, which breached the 4,200 level, closed just below session highs.
The moderation in both CPI and core CPI was the main driving factor for the market today. It fueled the notion that the Fed will be less aggressive with its rate-hike path and switch to a rate-cut cycle sooner rather than later. Total CPI was unchanged month-over-month and core CPI was up 0.3%.
The mega caps, growth stocks, and cyclical sectors led the way after those areas sold off heavily in recent sessions. The Vanguard Mega Cap Growth ETF (MGK), up 2.9%, closed ahead of the broader market. The Russell 3000 Growth Index (+2.7%) closed ahead of the Russell 3000 Value Index (+1.9%). The PHLX Semiconductor Index (SOX) closed up 4.3%.
S&P 500 sector performance reflected a risk-on mindset. The materials (+2.9%), consumer discretionary (+2.9%), communication services (+2.8%), and information technology (+2.8%) sectors topped the leaderboard.
The buying was broad-based with all 11 S&P 500 sectors closing in the green with gains ranging from 0.5% (utilities) to 2.9% (materials). The Invesco S&P 500 Equal Weight ETF (RSP) jumped 2.1% on the day.
Market breadth showed a strong skew towards advancing issues. Advancer led decliners by a roughly 6-to-1 margin at the NYSE and a less than 3-to-1 margin at the Nasdaq.
Pushing back against the market's notion of a policy pivot in the near future, Minneapolis Fed President Kashkari (2023 FOMC voter) said he thinks the terminal rate is 3.9%, adding that the Fed is "far far far away" from declaring victory on inflation. Meanwhile, Chicago Fed President Evans (not an FOMC voter) said he expects rates to top out at 4.0% but also said, "... if things get better more quickly, we can not raise rates quite as much..."
Treasury yields fell sharply immediately after the CPI report came out. The 2-yr note yield, which was at 3.27% just before the release, dropped to 3.08% in its wake before settling the day at 3.19%. The 10-yr note yield, which was at 2.80% just before the release, fell to 2.69% in its wake but gave back just about everything and settled at 2.79%.
Before tomorrow's open, Canada Goose (GOOS), Cardinal Health (CAH), Hanesbrands (HBI), Six Flags (SIX), US Foods (USFD), and Warby Parker (WRBY) are all set to report earnings.
Also on Thursday, market participants will receive the July PPI (Briefing.com consensus 0.3%; prior 1.1%) and core PPI (Briefing.com consensus 0.4%; prior 0.4%) at 8:30 a.m. ET. At the same time, weekly initial jobless claims (Briefing.com consensus 263,000; prior 260,000) and continuing claims (prior 1.416 million) will be released. At 10:30 a.m. ET, weekly EIA Natural Gas Inventories (prior +41 bcf) will be released.
Reviewing overnight developments:
- Total CPI was unchanged month-over-month (Briefing.com consensus +0.2%), leaving it up 8.5% year-over-year versus 9.1% in June. Core CPI, which excludes food and energy, was up 0.3% month-over-month (Briefing.com consensus +0.5%), leaving it up 5.9% year-over-year versus 5.9% in June.
- The key takeaway from the report is that it supports the peak inflation view, which in turn supports the market's hope that the Fed will temper its aggressive rate-hike approach in coming months and ultimately transition to a rate-cut cycle in 2023, perhaps as early as the first half of 2023.
- Weekly MBA Mortgage Applications Index showed 0.2% increase versus the prior increase of 1.2%.
- June Wholesale Inventories rose 1.8% (Briefing.com consensus 1.9%) versus the prior revised increase of 1.9% (from 1.8%).
Dow Jones Industrial Average: -8.3% YTD
S&P 400: -9.9% YTD
S&P 500: -11.7% YTD
Russell 2000: -12.3% YTD
Nasdaq Composite: -17.8% YTD
Market lifts into the close
10-Aug-22 15:20 ET
Dow +454.83 at 33231.12, Nasdaq +336.71 at 12830.59, S&P +79.07 at 4201.61
[BRIEFING.COM] The market is trending somewhat higher heading into the close.
Key earnings reports after the close include AppLovin (APP), Bumble Inc. (BMBL), Coupang (CPNG), Dutch Bros (BROS), and Walt Disney (DIS).
Before tomorrow's open, Canada Goose (GOOS), Cardinal Health (CAH), Hanesbrands (HBI), Six Flags (SIX), US Foods (USFD), and Warby Parker (WRBY) are all set to report earnings.
Also on Thursday, market participants will receive the July PPI (Briefing.com consensus 0.3%; prior 1.1%) and core PPI (Briefing.com consensus 0.4%; prior 0.4%) at 8:30 a.m. ET. At the same time, weekly initial jobless claims (Briefing.com consensus 263,000; prior 260,000) and continuing claims (prior 1.416 million) will be released. At 10:30 a.m. ET, weekly EIA Natural Gas Inventories (prior +41 bcf) will be released.
Market heads somewhat lower
10-Aug-22 15:05 ET
Dow +419.50 at 33195.79, Nasdaq +314.97 at 12808.85, S&P +73.63 at 4196.17
[BRIEFING.COM] The stock market is on a steady descent recently, but the S&P 500 and Nasdaq are still well off session lows.
Mega caps held their strength thus far in the session with the Vanguard Mega Cap Growth ETF (MGK) up 2.5% versus a 1.8% gain in the Invesco S&P 500 Equal Weight ETF (RSP).
Treasury yields have risen off their intraday lows with the 2-yr note yield down eight basis points to 3.18% while the 10-yr note yield is down one basis point to 2.79%.
Separately, the CBOE VIX Index dipped below the 20.00 level, down 9.6% to 19.68.
July budget deficit narrows
10-Aug-22 14:25 ET
Dow +473.63 at 33249.92, Nasdaq +326.68 at 12820.56, S&P +78.89 at 4201.43
[BRIEFING.COM] The major averages largely held up following the release of the July Treasury Budget. The benchmark S&P 500 (+1.91%) has a grip on second place.
The Treasury Budget for July showed a deficit of $211.0 bln versus a deficit of $302.0 bln a year ago. The Treasury Budget data is not seasonally adjusted, so the July deficit cannot be compared to the deficit of $88.8 bln for June.
Total receipts of $269.3 bln rose 2.8% compared to last year while total outlays of $480.4 bln were down about 14.8% compared to last year.
The total year-end budget deficit now stands at $726.1 bln, down around -71.4% y/y, vs $2.54 trln last year.
Gold moderately higher on Wednesday, held in check by inflation reading
10-Aug-22 13:55 ET
Dow +521.95 at 33298.24, Nasdaq +339.76 at 12833.64, S&P +84.49 at 4207.03
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (+2.72%) holds a commanding lead among the major averages.
Gold futures settled $1.40 higher (+0.1%) to $1,813.70/oz, aided in part by a falling dollar, but held in check by inflation data which came in under expectations.
Meanwhile, the U.S. Dollar Index is down about 1.3% to $104.97.
As a reminder, the Treasury Budget for July will be released in about 5 minutes at the top of the hour.
H&R Block is surging today on strong JunQ report; Briefing.com profiled HRB in YIELD rankings (HRB)
Updated: 10-Aug-22 14:27 ET
H&R Block (HRB +14%) is a name we have profiled several times in our YIELD Leaders rankings. We have liked the story and have been waiting and waiting for the stock to move higher. It finally has broken out with strong earnings reports in Q3 (Mar) and now again with its Q4 (Jun) report last night. The name has finally started to hit some radar screens.
We are a fan of its transformation. Specifically, H&R Block is best known for its tax prep services, but it also has branched into other financial products and small business services. Through Block Advisors and Wave, the company provides small business owners with products like Wave Money, a small business banking and bookkeeping platform introduced in June 2020. In January 2022, HRB launched a mobile banking platform, Spruce.
- In JunQ, HRB reported a big beat for EPS and nice upside for revenue. HRB has now posted double-digit EPS beats in each of the past six quarters. It has helped that the last several tax seasons have been complicated by stimulus/payroll activity and related timing shifts amid the pandemic.
- Small business tax was a standout segment in JunQ with strong growth in both assisted and DIY clients as well as an improved mix which led to a double-digit revenue increase this tax season vs last year. Results were helped by HRB rolling out some client acquisition and retention strategies, including enhanced marketing efforts. HRB has also been building out its bookkeeping and payroll offerings and testing new services.
- Wave also continues to perform well with revenue up 28% in FY22 and ARPU continuing to accelerate on both a sequential and yr/yr basis. Spruce now has 160,000 sign-ups and $83 mln in customer deposits. It is still small, but keep in mind that HRB limited its introduction to the DIY channel, but plans to broaden that over time.
- One of the main reasons we liked HRB was its aggressive share repurchase activity. In FY22, HRB repurchased 23 mln shares for $550 mln, or a whopping 13% of shares outstanding. It sounds like this will continue as HRB announced a new $1.25 bln authorization today. And to top that off, it also announced a 7% hike to its quarterly dividend to $0.29/sh for a healthy 2.6% yield.
Overall, we remain fans of HRB and the huge buybacks demonstrate that management also sees its stock as a good value. While small business and financial products have been components of HRB's business for years, the company is now focusing greater efforts on targeting those opportunities. Plus it is smartly branching out into adjacent areas like mobile banking. These areas seem like a natural extension in light of H&R Block's trusted brand, its small business relationships, and its technology platform. It is all part of growing its financial flywheel. This potential for HRB has always been there, but now they are finally expanding beyond tax prep and we like it.
Unity Software tacks on big gains today as its Q2 results were largely better than feared (U)
Updated: 10-Aug-22 13:33 ET
Video game and 3D software development firm Unity Software (U +10%) is receiving a huge lift today despite trimming its FY22 revenue guidance for the second-straight quarter in Q2. A significant driver of today's favorable reaction is Unity's healthy progress in ironing out the massive wrinkle that badly dented its Q1 results.
- The primary issue that led to Unity's lackluster results in Q1 was surrounding its Operate Solutions segment, which offers customers the ability to grow their end-user base and monetize their content. In Q1, Unity experienced self-inflicted headaches regarding the monetization aspect, experiencing a reduction in its Audience Pinpointer tool's accuracy and losing a portion of its data from ingesting bad data from a large customer. Although these issues trickled into Q2, driving a 13% drop in Operate sales yr/yr to $159 mln, sizeable progress was made in fixing the problems.
- Unity noted that it removed the bad data that was inadvertently ingested. It also deployed a "significant investment" in its Audience Pinpointer product. As a result, Unity has already noticed performance and accuracy improvements at scale.
- Still, Unity conceded that it was disappointed in the underperformance in monetization, which weighed on overall revenue growth in Q2. Sales grew just 8.6% yr/yr to $297 mln, missing estimates.
- On the flip side, a positive theme to carry over from Q1 was robust growth in Unity's Create Solutions segment, which soared 66% yr/yr to $121 mln in Q2, a slight acceleration from the +65% growth last quarter.
- Unity also provided some upbeat comments. Given the recent softening of gaming trends, evident by recent results from NVIDIA (NVDA) and Take-Two (TTWO), Unity's remarks on its gaming business, stating that it continues to strengthen and Q2 was its biggest games quarter ever, is quite encouraging. Also, Unity is seeing an acceleration in its business outside of games, boasting big wins across certain industries and geographies.
- Although Unity trimmed its FY22 revenue forecast to $1.30-1.35 bln from $1.35-1.425 bln, the change was not as bad as investors feared, especially given how pronounced Operate's issues were last quarter as well as the recent slowdown in advertising spending and gaming demand.
Overall, Unity is receiving the better-than-feared treatment today after detailing the solid progress made within its monetization business. It also helps that Unity squeaked out an earnings beat in Q2 after merely meeting estimates last quarter. Lastly, Unity was hopeful that its Q1 setbacks were temporary and believed its end markets were otherwise healthy. Its Q2 numbers mostly affirmed these predictions, paving the way for a brighter near-term future.
Workiva works around a volatile market in Q2, showcasing durability of demand for its platform (WK)
Updated: 10-Aug-22 13:32 ET
Workiva (WK), a provider of cloud-based compliance and regulatory reporting software, kept its remarkable streak of beating quarterly EPS and revenue estimates alive in Q2. That winning streak, which now spans over five years, is both a testament to WK's solid execution, and the durability of demand for its platform. In Q2, the company experienced notably strong bookings growth for its Governance Risk and Compliance (GRC) and Environmental, Social and Governance (ESG) offerings. Strength in these two groups offset ongoing weakness in the Capital Markets solution, which continues to be negatively impacted by an ice-cold IPO market.
Excluding Capital Markets, it's evident that corporations are still prioritizing investments in WK's platform, even as macroeconomic uncertainties increased. Given the complexity surrounding regulatory issues, it's easy to see the value in a platform that allows users and teams to collaborate, share and link documents, and access audit trails of filings. While demand remains healthy, CEO Marty Vanderploeg cautioned that sales cycles could lengthen due to the more volatile market conditions.
That realization, though, is also a key behind what's primarily driving the stock higher today.
- To counteract the more challenging business climate, WK is turning its focus towards achieving greater operating leverage. This approach will include slowing its hiring plans for the remainder of 2022 and reviewing spending across the company.
- Combined with WK's steady top-line growth, this more stringent expense management plan is expected to generate stronger margins in the future. More specifically, the company anticipates returning to positive non-GAAP operating margins in the latter half of 2023.
- In Q2, WK posted non-GAAP operating margin of (6.3)% compared to 5.0% in the year-earlier quarter.
- Importantly, WK doesn't intend to scale back its investments on the growth initiatives it has prioritized, including the expansion of its ESG product. The ESG solution has provided WK with a competitive advantage as it allows customers to seamlessly report their financial and non-financial data together.
Unlike some tech companies that have curtailed spending and hiring activity due to a severe deceleration in growth (META, SNAP, NFLX, SHOP are a few that come to mind), WK is cutting back on expenses while business is still relatively strong. That distinction also helps to explain the stock's strength today. One metric that really illustrates the current health of WK's business is the organic revenue retention rate of 97.9 -- the highest it has reported as a public company. Including add-on revenue, that figure jumps to 108%. Overall, WK's beat-and-raise report highlights the resiliency of demand for its compliance and regulatory software, while its cost-cutting efforts show that its executives are in tune with investors' wishes to focus on profitability.
Akamai Tech's content delivery business stumbles as momentum builds for compute and security (AKAM)
Updated: 10-Aug-22 11:27 ET
Despite experiencing a significant slowdown in its core Delivery business, Akamai Tech (AKAM) still edged past Q2 EPS and revenue estimates. The upside results highlight the company's successful efforts to expand its higher growth Compute and Security business lines, which now account for 54% of total revenue when combined.
Compute is capitalizing on the powerful trends of edge computing and cloud data storage, amplified by its recent $900 mln acquisition of cloud hosting company Linode. Meanwhile, the prioritization of cybersecurity investments by CIOs is fueling robust demand for AKAM's API security portfolio and its zero-trust suite. Combined, the Compute and Security businesses generated revenue growth of 30% this quarter in constant currency.
However, the whole picture for AKAM remains mixed, as reflected in the company's soft EPS and revenue guidance for Q3 and FY22.
- Although AKAM's growth strategy centers on the Compute and Security segments, it still generates nearly half of its revenue from content delivery and optimization products. Advertisers and gaming are two end markets in particular that rely on AKAM's content delivery network (CDN) for site acceleration, automated image and video optimization, and traffic management.
- As illustrated by the weak earnings reports from Snap (SNAP), Facebook (FB), and, to a lesser extent, Alphabet (GOOG), online advertisers have reined in spending. Also, NVIDIA (NVDA) sharply cut its Q2 revenue guidance on Monday due to a 44% plunge in its Gaming segment.
- Given the above, it doesn't come as a surprise that AKAM's Delivery segment experienced an 11% yr/yr drop in revenue to $417 mln.
- The road ahead doesn't look any better for Delivery, either, with AKAM projecting slower-than-normal internet traffic growth for the remainder of 2022. From a top-line perspective, this headwind is compounded by the company's decision to turn down some business from certain customers that have extreme traffic peaks compared to daily usage patterns.
- AKAM's rational behind that decision is that it will enable it to substantially lower its network capex, freeing up capital to invest in the faster growing Compute and Security segments.
- Due to these investments, and the slowdown in Delivery, AKAM expects non-GAAP operating margin to remain below 30% in the near-term. In Q2, non-GAAP operating margin declined by 300 bps yr/yr to 29.0%.
- To boost margins back above the 30% mark, the company is implementing a cost reduction plan that features a migration of internal workloads to its own Linode platform. This action will materially lower its cloud spend with hyperscalers.
- Relatedly, AKAM CEO Tom Leighton noted during the earnings conference call that many enterprises are looking to diversify their cloud spend as they grow concerned about getting locked into expensive contracts with their main competitors. This is creating an opportunity for alternatives like Linode, which contributed $32 mln in revenue in Q2.
The main takeaway is that AKAM's business is disjointed at the moment as the Delivery business weighs down the stronger Compute and Security businesses. As those two product groups become a larger portion of the overall business, improved results should follow. On that note, Leighton expects Security to become the largest business next year, with Compute eventually overtaking Security. In the meantime, though, AKAM's results will likely remain mediocre as Delivery struggles in a challenging environment.
Coinbase Global ticks higher as BTC's gains help investors shrug off underwhelming Q2 results (COIN)
Updated: 10-Aug-22 10:44 ET
Being the largest cryptocurrency exchange in the U.S. by trading volume, it may not be surprising that Coinbase Global's (COIN +5%) Q2 results were uninspiring, given the struggling crypto market. The largest cryptocurrency by market cap, Bitcoin (BTC), experienced numerous steep declines throughout the quarter, going so far as to drop below its 2017 high briefly. This level of volatility spooked many crypto investors, sparking another sequential dip in a key metric: monthly transacting users (MTUs).
Since COIN takes a fee on both sides of a trade, MTU growth is important. It also helps improve COIN's subscription and services revenue, which is comprised of fee-paying users as well as lending and other services. Even though MTUs grew 2.3% from the year-ago period, they still fell 2.2% from Q1. Meanwhile, total trading volume plummeted by 53.0% yr/yr and 29.8% sequentially to $217 bln, COIN's lowest level since its April 2021 IPO.
However, all that said, COIN is still ticking higher today. With BTC making solid gains following better-than-expected CPI data today, investors are shrugging off COIN's Q2 woes. Short interest is also relatively high at around 21%, leading to short squeeze potential. It is also worth noting that expectations were fairly low, given the ongoing market volatility. Therefore, although COIN experienced plenty of hardships in Q2, much of it was already expected. Plus, there were still some pockets of good news.
- In Q2, COIN reported a sizeable net loss of $(4.98) per share, its second-straight quarter in the red. Revs tumbled 63.7% yr/yr to $808.33 mln, marking COIN's lightest quarter of sales since going public. It also did not help that the company was lapping a period of explosive 1040.2% growth yr/yr. Both metrics fell short of analyst expectations.
- The dramatic market movements throughout Q2 fueled the underwhelming headline figures. They also led to bankruptcy filings by competitors Voyager and Celsius, along with withdrawal freezes by others like Binance, albeit for only a few hours. These events likely had a slight ripple effect on COIN as its users may not have wanted to risk facing the same unfortunate situation.
- However, on the flip side, the current crypto bear market taking down a couple of competitors is a positive for COIN. The company commented that during "crypto winter" (a bear market), there can be interesting M&A opportunities.
- Additionally, COIN strengthened its market leader position by surviving the latest round of volatility. The company also boasts a strong capital position, noting that it had $6.2 bln in total USD resources as of Q2, no credit losses from its financing activities, and no exposure to client or counterparty insolvencies, such as Three Arrows Capital, which filed for bankruptcy last month.
- Looking ahead, COIN expects Q2 trends to persist throughout the rest of the year, narrowing its FY22 MTU guidance to 7.0-9.0 mln from 5.0-15.0 mln.
Bottom line, given COIN's close ties to the broader crypto market, its Q2 results were largely anticipated. Meanwhile, COIN is being further helped by solid appreciation from BTC today. Lastly, we think COIN's ability to navigate the latest market volatility is a testament to its solid business model, boding well for the company that operates in an incredibly volatile crypto market.
July CPI report gets a passing grade
There has been a little deflation in the major indices this week, as some caustic revenue warnings from leading semiconductor companies have take some wind out of their sails. Additionally, some ridiculous price action in the meme stocks has stood out as an end-stage type move in a broader rally effort.
The specter of the July Consumer Price Index (CPI) Report, however, has also been a halting influence. The stock market has battled back nicely from its mid-June lows, spurred in part by a belief that the Federal Reserve is going to pivot to a friendlier policy position sooner rather than later.
The July employment report threw some cold water on the latter notion, but since the employment report is a lagging indicator, there has been some some nervous anticipation leading up to the more current CPI data, with market participants wondering if it will go the way of the employment report or the way of the hopeful pivot expectation.
They need wonder no more.
The July CPI report went the way of the... drumroll please... hopeful pivot expectations.
Total CPI was unchanged month-over-month (Briefing.com consensus +0.2%), leaving it up 8.5% year-over-year versus 9.1% in June. Core CPI, which excludes food and energy, was up 0.3% month-over-month (Briefing.com consensus +0.5%), leaving it up 5.9% year-over-year versus 5.9% in June.
The key takeaway from the report is that it supports the peak inflation view, which in turn supports the market's hope that the Fed will temper its aggressive rate-hike approach in coming months and ultimately transition to a rate-cut cycle in 2023, perhaps as early as the first half of 2023.
That view will be put to the test with every CPI report in coming months, as well as in coming hours, days, and weeks, only because the rate of inflation for total CPI and core CPI is still well above the Fed's 2% inflation target. Also, Fed officials have said that one report does not a convincing trend make.
Nevertheless, the market's initial response to this morning's data is exactly what one would expect. It borders on giddy.
The S&P 500 futures were up 16 points just before the release. They are now up 71 points and are trading 1.7% above fair value. The Nasdaq 100 futures are up 310 points and are trading 2.2% above fair value, and the Dow Jones Industrial Average futures are up 421 points and are trading 1.4% above fair value.
The 2-yr note yield, which is the most sensitive to expected changes in the fed funds rate, was sitting at 3.27% just before the release but now sits at 3.13%, down 13 basis points from yesterday's settlement. The 10-yr note yield, parked at 2.80% before the release, is down seven basis points from yesterday's settlement to 2.73%.
The 2s10s spread remains inverted, but the current move will register as a curve steepener rooted in a belief that inflation is being tamed and that the economy can still be piloted to a soft landing.
That view is an uplifting one for the stock market, so there will be a broad rally effort when trading begins that is paced by leadership from the cyclical sectors and mega-cap stocks. The initial move should have the S&P 500 on the doorstep of 4,200, which, as we said Monday, is where the conviction of the rebound momentum will truly be put to the test.
The July CPI report, though, clearly got a passing grade from a headline standpoint.
-- Patrick J. O'Hare, Briefing.com
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