Market Snapshot
briefing.com
| Dow | 31744.70 | -356.25 | (-1.11%) | | Nasdaq | 11841.74 | -175.89 | (-1.46%) | | SP 500 | 3978.70 | -51.98 | (-1.29%) | | 10-yr Note |
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| | NYSE | Adv 631 | Dec 2418 | Vol 819 mln | | Nasdaq | Adv 1306 | Dec 2754 | Vol 4.5 bln |
Industry Watch
| Strong: -- |
| | Weak: Energy, Materials, Industrials, Utilities |
Moving the Market
-- Building on downside momentum from recent sessions
-- Rising Treasury yields
-- Broad selling interest
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Closing Summary
30-Aug-22 16:25 ET
Dow -308.12 at 31792.83, Nasdaq -134.53 at 11883.10, S&P -44.45 at 3986.23
[BRIEFING.COM] The stock market continued its selloff today with each of the major indices closing below their respective 50-day moving averages. The market opened flat before downside momentum picked up steam around midmorning. The major indices were stuck in a narrow trading range throughout the afternoon with the S&P 500 closing below the 4,000 level.
The selling effort was indiscriminate, leaving many stocks with losses. The S&P 500, the Vanguard Mega Cap Growth ETF (MGK), and the Invesco S&P 500 Equal Weight ETF (RSP) all closed with a 1.1% loss.
Growth and value stocks both suffered notable losses with the Russell 3000 Growth Index closing down 1.1% while the Russell 3000 Value Index closed down 1.2%.
Market breadth reflected the selling bias today. Decliners led advancers by a nearly 4-to-1 margin at the NYSE and a 2-to-1 margin at the Nasdaq.
Every S&P 500 sector closed in the red with losses ranging from 0.4% (financials) to 3.4% (energy).
The energy sector was in last place, by a wide margin, while energy complex futures sold off. WTI crude oil futures fell 5.5% to $91.60/bbl. Natural gas futures fell 2.6% to $9.06/mmbtu. Unleaded gasoline futures fell 7.0% to $2.53/gal. This comes after Bloomberg reported that the EU is set to meet its gas storage filling goal two months ahead of target. Also, European Commission President von der Leyen said that an emergency intervention is being planned to rein in energy prices.
On an individual basis, Big Lots (BIG 24.08, +2.53, +11.7%) made a big upside move on favorable quarterly results while Best Buy (BBY 74.89, +1.19, +1.6%) also had a sizable earnings-driven gain.
The 2-yr Treasury note yield rose four basis points to 3.46% while the 10-yr Treasury note yield was unchanged at 3.11%.
Ahead of Wednesday's open, Brown-Forman (BF.B) reports quarterly results.
Wednesday's economic data includes the weekly MBA Mortgage Applications Index (prior -1.2%) at 7:00 a.m. ET, August ADP Employment Change (Briefing.com consensus 315,000) at 8:15 a.m. ET, August Chicago PMI (Briefing.com consensus 53.1; prior 52.1) at 9:45 a.m. ET, and weekly EIA Crude Oil Inventories (prior -3.28 million) at 10:30 a.m. ET.
Reviewing overnight developments:
- The Conference Board's Consumer Confidence Index rose to 103.2 in August (Briefing.com consensus 97.4) from a downwardly revised 95.3 (from 95.7) in July. This was the first increase in the index in four months. In the same period a year ago, the Consumer Confidence Index stood at 115.2.
- The key takeaway from the report is that even with the August improvement in confidence, the Expectations Index remains below 80.0, which suggests the continued presence of an elevated risk of recession.
- July JOLTS Job Openings totaled 11.239 million after the prior revised total of 11.04 million (from 10.698).
- June FHFA Housing Price Index rose 0.1% after the prior revised 1.3% increase (from 1.4%).
- June S&P Case-Shiller Home Price Index rose 18.6% (Briefing.com consensus 19.0%) following a prior 20.5% increase.
Dow Jones Industrial Average: -12.5% YTD
S&P 400: -13.9% YTD
S&P 500: -16.4% YTD
Russell 2000: -17.4% YTD
Nasdaq Composite: -24.1% YTD
Market lifts somewhat heading into the close
30-Aug-22 15:30 ET
Dow -267.89 at 31833.06, Nasdaq -135.21 at 11882.42, S&P -41.18 at 3989.50
[BRIEFING.COM] The major indices lifted somewhat off the lows heading into the close.
The 2-yr note yield rose four basis points to 3.46% while the 10-yr note yield was unchanged at 3.11%.
After the close, HP Inc (HPQ), Hewlett Packard Enterprise (HPE), Chewy (CHWY), and CrowdStrike (CRWD) all report earnings.
Ahead of Wednesday's open, Brown-Forman (BF.B) reports quarterly results.
Wednesday's economic data includes the weekly MBA Mortgage Applications Index (prior -1.2%) at 7:00 a.m. ET, August ADP Employment Change (Briefing.com consensus 315,000) at 8:15 a.m. ET, August Chicago PMI (Briefing.com consensus 53.1; prior 52.1) at 9:45 a.m. ET, and weekly EIA Crude Oil Inventories (prior -3.28 million) at 10:30 a.m. ET.
Market little changed in the last half hour
30-Aug-22 15:00 ET
Dow -356.25 at 31744.70, Nasdaq -175.89 at 11841.74, S&P -51.98 at 3978.70
[BRIEFING.COM] The stock market is little changed in the last half hour.
Tesla (TSLA 273.87, -10.99, -3.8%) will have to face a lawsuit over its Autopilot’s phantom braking problem, according to Electrek. Weakness here is contributing to the consumer discretionary sector's losses (-1.7%) that sits just above energy (-3.7%) at the bottom of the pack.
Separately, WTI crude oil futures settled 5.5% lower at $91.60/bbl. Natural gas futures fell 2.6% to $9.06/mmbtu. Unleaded gasoline futures fell 7.0% to $2.53/gal.
Market continues lateral move
30-Aug-22 14:35 ET
Dow -321.54 at 31779.41, Nasdaq -167.89 at 11849.74, S&P -48.57 at 3982.11
[BRIEFING.COM] The major indices were confined to a narrow range in the last half hour.
Market breadth shows decliners leading advancers by a better than 4-to-1 margin at the NYSE and a better than 5-to-2 margin at the Nasdaq.
Reuters reported that Boeing (BA 161.32, -4.10, -2.5%) received a 787 Dreamliner order from China Airlines in Taiwan. The stock is lagging currently with the Dow Jones Industrial Average down 1.1%.
Separately, copper futures settled 1.5% lower at $3.55/lb.
Gold lower again on Tuesday
30-Aug-22 13:55 ET
Dow -339.67 at 31761.28, Nasdaq -176.84 at 11840.79, S&P -49.73 at 3980.95
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-1.47%) hosts the worst losses.
Gold futures settled $13.40 lower (-0.8%) to $1,736.30/oz, dipping slightly to cap off a third-straight loss on a modest rise in treasury yields and soft action in the dollar.
Meanwhile, the U.S. Dollar Index is up narrowly (+0.02%) at $108.86.
Baidu sinks despite beating on earnings and revs in Q2 as near-term concerns linger (BIDU)
Chinese internet giant Baidu (BIDU -6%), often dubbed the Google (GOOG) of China, is seeing its shares sink today despite posting beats on its top and bottom lines in Q2. With over half its revenue derived from online advertising, the weak economic picture in China dented BIDU's Q2 results to a degree. Specifically, COVID-19 continued to lead to a softening demand backdrop, adversely affecting advertising spending throughout the region. However, the situation started to improve in July, illustrated by a narrowing decline in ad revenue yr/yr from June.
So why are shares slipping? Management was cautious in its remarks on the back half of the year, noting that the company is still facing macro uncertainties. Furthermore, management mentioned that COVID-19 cases are experiencing a resurgence in some popular travel destinations during the peak summer season. Also, with BIDU's search app highly correlated with China's GDP growth and the performance of the country's small and medium-sized businesses (SMBs), the uncertainty regarding COVID-19 and possible further economic shutdowns are a concern and fueling some profit-taking today. As of yesterday's close, the stock jumped 15% from August 18 lows on reduced delisting fears after the SEC's agreement on governing inspections of audit firms based in China and Hong Kong.
- In Q2, revs fell yr/yr for the first time since 2Q20, dropping 5.4% yr/yr to $4.43 bln. Ad revenue taking a 10% spill yr/yr to $2.55 bln weighed most heavily on overall revs in the quarter.
- A positive standout was BIDU's non-ad revenue, consisting of its cloud and AI offerings, which jumped 22% yr/yr to $906 mln. Although this represented a deceleration from the +35% growth seen in Q1, it marked over eight-straight quarters of double-digit growth.
- One highlight from non-core revs was BIDU's autonomous driving business Apollo, which provided over 280K rides in Q2, a nearly 500% climb yr/yr. BIDU continues to make strides in Apollo, securing regulatory permits in additional cities, which helps generate more data to implement improvements within the autonomous driving system.
- BIDU also has a stake in iQIYI (IQ), sometimes referred to as the Netflix (NFLX) of China. Revenue from IQ was $994 mln, a 13% dip yr/yr. Although IQ's membership business saw yr/yr growth in the quarter, this was more than offset by weak non-membership growth stemming from the souring macro environment.
Bottom line, we like seeing BIDU's non-ad business continue to perform nicely in Q2, especially given the headwinds currently plaguing China. However, BIDU's cautious commentary on the back half of FY22 is a concern and a leading cause of a sell-the-news reaction today.
Photronics down sharply as its JulQ report was more muted than recent robust quarters (PLAB)
Photronics (PLAB -23%) is a name we flagged yesterday as being noticeably weak ahead of its Q3 (Jul) earnings report this morning. This supplier of photomasks, which are used to make chips and flat panel displays (FPD), has been posting impressive earnings results of late. However, some retailers have been cautioning of a slowdown in consumer electronic sales, which made us a bit cautious heading into today's report and our concerns turned out to be valid.
- The company did report upside with its Q3 results, but it was very modest upside and well below the large upside we have become accustomed to the last four quarters. But probably more troubling was the downside EPS guidance for Q4 (Oct). This was PLAB's first downside guidance in nearly two years, so it is a noticeable change. Also, the mid-point of the revenue guidance was below analyst expectations.
- There were some positive aspects to the report. PLAB continues to maintain that demand for its photomasks remained strong for both its IC and FPD segments, including high end and mainstream applications. Also, this was PLAB's fifth consecutive quarter of record revenue. And higher selling prices helped push gross and operating margins to 25-year record highs of 38% and 29%, respectively.
- Not surprisingly, management got a lot of questions on the guidance during the call. There is a bit of a language barrier, but it sounds like PLAB is seeing a little bit of pushout in the high end segment from some of its major customers. It sounds like demand remains strong, but some customers want to work down existing inventory before ordering more.
- PLAB expects activity should start to recover by the end of September or in October. Other factors that appear to be impacting guidance are increased investments in building out capacity, FX headwinds, Q4 tends to be seasonally slower and general economic uncertainty.
The stock is down pretty severely today. We think the guidance is mostly responsible for the move. PLAB has been posting very robust results of late, so we think this report is catching some investors off guard. However, we do not find the guidance all that surprising given the consistent message from retailers that consumer electronic sales have slowed. We hope that PLAB is right, that it is mostly due to customers working down current inventory rather than a lack of end demand. But at the same time, these customers have a better view of the end market than PLAB, so their decision is a bit worrisome.
Best Buy avoids a worse sell-off after posting better-than-feared report, but sales still soft (BBY)
About one month ago, Best Buy (BBY) provided a bleak view on current business conditions, with CEO Corie Barry stating that demand within the consumer electronics industry softened further due to macroeconomic headwinds. Against that unfavorable backdrop, BBY reported Q2 results this morning that surpassed the downwardly revised outlook that was included in last month's update. Comparable sales declined by 12.1% compared to its guidance for a decrease of 13%, and revenue increased by 8.3% over the pre-pandemic quarter of 2Q20, versus its forecast for an increase of 7.5%.
Additionally, even though BBY's domestic gross margin rate slipped by 170 bps yr/yr to 22.0%, the company still comfortably beat analysts' EPS expectations. Remarkably, the Q2 upside EPS performance extends a winning streak that now spans almost five years. This quarter, the company leaned on cost-cutting actions to deliver the better-than-expected bottom-line performance. Selling, general, and administrative expenses were down by 6.3% yr/yr to $1.88 bln, primarily related to lower incentive compensation. The company continued to remove costs once the quarter ended, reportedly cutting hundreds of jobs in its stores this past month, according to the Wall Street Journal.
It's certainly a positive that BBY outperformed expectations. However, the financial results on an absolute basis were not strong and are reflective of an "uneven sales environment", as Barry describes it.
- Adjusted EPS of $1.54 was nearly cut in half on a yr/yr basis as BBY contends with shrinking sales and margins. Like many other retailers, BBY is operating in an environment that is much more promotional. In the year-earlier period, consumers were still flush with cash from stimulus programs, enabling them to upgrade their PCs, phones, and electronics as the work-from-home shift continued.
- Now, consumers are tightening their budgets to help offset rising food and energy costs, while the work-from-home catalyst has mainly played out.
- Accordingly, BBY reported that sales declined in almost every product category. Similar to the last quarter, computing and home theater suffered the most severe declines.
- Based on BBY's Q3 guidance, investors shouldn't expect demand to improve any time soon. In fact, the company expects that Q3 comparable sales will be slightly worse than the 12.1% decline it posted in Q2. That's a fairly dismal outlook considering that BBY is lapping an easy yr/yr comp of +1.6%, compared to the +19.6% comp it lapped this quarter.
- A weak sales climate and the associated increase in promotional activity is weighing on BBY's non-GAAP operating income outlook for Q3. Specifically, the company anticipates that Q3 non-GAAP operating margin will drop at a similar rate, or slightly more than, the decline experienced in Q2.
The main takeaway is that BBY's results and outlook were better-than-feared and surpassed analysts' and investors' rock-bottom expectations. Beyond simply hurdling over a low bar, the company's ability to pull some levers on the expense side stands out, especially since profits have become a focal point lately. Overall, though, it's hard for us to get overly excited about BBY's results and outlook since spending on consumer electronics is likely to remain constrained.
Big Lots puts the exclamation point on its JulQ report as its repositioning efforts pay off (BIG)
Big Lots (BIG +5%) put the exclamation point on its Q2 (Jul) earnings report, delivering a double-digit earnings beat, a big turnaround from the triple-digit miss last quarter. Despite serving lower income levels, BIG has struggled during the inflationary environment as its inventory assortment was not well-positioned to capitalize on consumers trading down.
However, although headwinds from Q1 (Apr) trickled into Q2, BIG's efforts to reposition its business as the destination for individuals trading down started to pay dividends in Q2.
- A significant component of BIG's repositioning efforts was shifting its assortment toward better bargains and displaying these more clearly. For example, while slightly under 40% of the company's end caps hosted bargains by the end of July, BIG expects nearly 90% of its end caps to feature deals by the end of Q3 (Oct).
- By highlighting its most valuable offerings more openly, BIG hopes to reduce the frequency of its customers looking elsewhere for good deals. This has already started to bear fruit, with customer reactivations through the company's loyalty program jumping 16% yr/yr in Q2.
- Another major component of BIG's turnaround strategy is bolstering its private brands portfolio, which the company expects to play a vital role in increasing its appeal as a trade-down destination. Sales growth within two of its private labels, Broyhill and Real Living, reached around 20% in Q2 and represented 30% of BIG's total business, up meaningfully from the mid-20% last year.
- These efforts helped BIG mostly achieve its prior three-year comp outlook of positive mid to high single-digits in Q2, posting comps of +3.6%, an acceleration from the +1.9% in Q1.
- For Q3, BIG expects one-year comparable sales to decline by low double-digits, in-line with what the company experienced Q3-to-date, as inventories continue to be cleared through. However, by Q4 (Jan), BIG expects one-year comps to improve sequentially as its inventories move into a clean position, offering better deals and more unique offerings.
Although BIG's turnaround efforts are starting to pay off nicely, the company is not yet out of the woods. Its largest merchandise category, Furniture, which made up 27.4% of FY22 revenue, is experiencing softness as inflation deters consumers from purchasing more discretionary items. Furthermore, cost inflation is also elevated, illuminated by adjusted EPS falling to $(2.28) in Q2 from a positive $1.09 in the year-ago period, driven by a 10 pt drop yr/yr in adjusted operating margins. On the bright side, BIG has seen higher markdowns and soaring freight costs reverse and expects margins to be relatively in-line with the prior year period by Q4.
Bottom line, although it took a couple quarters of lackluster results, BIG's actions to reposition itself for the current inflationary environment are beginning to pan out, setting the company up for steady success as it moves through the back half of the year.
On a side note, BIG's JulQ numbers are a good sign for its major competitor Ollie's Bargain Outlet (OLLI), which reports JulQ earnings before the bell on September 1.
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