| | | Market Snapshot
briefing.com
| Dow | 35435.28 | +207.68 | (0.59%) | | Nasdaq | 14061.16 | +27.97 | (0.20%) | | SP 500 | 4557.12 | +19.51 | (0.43%) | | 10-yr Note | -2/32 | 3.86 |
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| | NYSE | Adv 1784 | Dec 1111 | Vol 794 mln | | Nasdaq | Adv 2132 | Dec 2312 | Vol 4.0 bln |
Industry Watch
| Strong: Energy, Real Estate, Financials, Communication Services, Consumer Staples |
| | Weak: Health Care, Utilities |
Moving the Market
-- Awaiting market-moving events this week including: earnings from GOOG, MSFT, and META, policy meetings for the Fed, the ECB, and the Bank of Japan, and key economic releases like the June Personal Income and Spending report
-- Not a lot of conviction leading to mixed action under the surface
-- Treasury yields rising off overnight lows
-- Digesting mixed preliminary July S&P Global US Manufacturing and Services PMIs, showing improvement in manufacturing versus June while services activity decelerated some versus June
| Closing Summary
24-Jul-23 16:25 ET
Dow +183.55 at 35411.15, Nasdaq +26.06 at 14059.25, S&P +18.30 at 4555.91
[BRIEFING.COM] The major indices nudged higher today in front of a busy week of market-moving events. The Dow Jones Industrial Average registered its eleventh consecutive gain as many blue chip stocks outperformed.
Market participants will digest a heavy batch of earnings this week, headlined by Alphabet (GOOG 121.88, +1.57, +1.3%) and Microsoft (MSFT 345.11, +1.34, +0.4%) after the close on Tuesday and Meta Platforms (META 291.61, -2.65, -0.9%) after the close on Wednesday.
Several central banks will announce policy decisions including the Fed on Wednesday, the ECB on Thursday, and the Bank of Japan on Friday. Recent gains have been partially driven by the notion that the Fed is close to being done raising rates, so participants will be keenly focused on commentary that accompanies Wednesday's FOMC decision.
Participants will also be focused on key economic data this week, culminating with the June Personal Income and Spending report on Friday that features the Fed's preferred inflation gauge (the PCE and core-PCE Price Indexes).
Today's more deliberate approach to buying was reflected in low volume and a mixed advance-decline line that saw advancing issues outpace declining issues at the NYSE and declining issues outpace advancing issues at the Nasdaq.
Nine of the 11 S&P 500 sectors logged a gain. Energy (+1.7%) was the top performer, paced by gains in Chevron (CVX 161.82, +3.13, +2.0%), which said it expects Q2 EPS to be above consensus, and rising oil prices ($78.83/bbl, +1.78, +2.3%). The financials (+1.0%) and real estate (+1.0%) sectors were also winning standouts.
The utilities (-0.3%) and health care (-0.2%) sectors, meanwhile, fell to the bottom of the pack.
Treasuries started the session with gains after a slate of discouraging preliminary July Manufacturing and Services PMI readings out of the eurozone. Meanwhile, the preliminary July S&P Global US Manufacturing and Services PMIs were mixed, showing some improvement in manufacturing versus June while services activity decelerated some versus June.
Yields ultimately settled close to their highs for the day as the market digested an okay 2-yr note auction and readied itself for a $43 bln 5-yr note auction on Tuesday. The 2-yr note yield rose three basis points to 4.88% and the 10-yr note yield rose one basis point to 3.86%.
- Nasdaq Composite: +34.3% YTD
- S&P 500: +18.6% YTD
- Russell 2000: +11.6% YTD
- S&P Midcap 400: +11.5% YTD
- Dow Jones Industrial Average: +6.8% YTD
Reviewing today's economic data:
- July S&P Global US Manufacturing PMI - Prelim 49.0; Prior 46.3
- July S&P Global US Services PMI - Prelim 52.4; Prior 54.4
Looking ahead to Tuesday, market participants will receive the following economic data:
- 09:00 ET: May FHFA Housing Price Index (Prior 0.7%)
- 09:00 ET: May S&P Case-Shiller Home Price Index (Briefing.com Consensus -1.9%; Prior -1.7%)
- 10:00 ET: July Consumer Confidence (Briefing.com consensus 111.5; Prior 109.7)
Econ data tomorrow
24-Jul-23 15:40 ET
Dow +168.91 at 35396.51, Nasdaq +6.96 at 14040.15, S&P +13.52 at 4551.13
[BRIEFING.COM] The major indices have pulled back over the last half hour.
The U.S. Dollar Index rose 0.3% to 101.39.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 09:00 ET: May FHFA Housing Price Index (Prior 0.7%)
- 09:00 ET: May S&P Case-Shiller Home Price Index (Briefing.com Consensus -1.9%; Prior -1.7%)
- 10:00 ET: July Consumer Confidence (Briefing.com consensus 111.5; Prior 109.7)
Energy complex settles mixed
24-Jul-23 15:05 ET
Dow +207.68 at 35435.28, Nasdaq +27.97 at 14061.16, S&P +19.51 at 4557.12
[BRIEFING.COM] The major indices continue to trade in narrow ranges.
Energy complex futures settled in mixed fashion. WTI crude oil futures rose 2.3% to $78.83/bbl while natural gas futures fell 0.8% to $2.69/mmbtu.
Treasury yields continue to move higher. The 2-yr note yield is up three basis points to 4.86% and the 10-yr note yield is up one basis point to 3.86%.
S&P 500 holding firm in second place on Monday afternoon
24-Jul-23 14:30 ET
Dow +226.43 at 35454.03, Nasdaq +43.64 at 14076.83, S&P +23.33 at 4560.94
[BRIEFING.COM] The S&P 500 (+0.51%) is in second place to this point on Monday afternoon, up about 23 points.
S&P 500 constituents KeyCorp (KEY 11.97, +0.54, +4.72%), Freeport-McMoRan (FCX 42.40, +1.79, +4.41%), and Halliburton (HAL 38.29, +1.35, +3.65%) pepper the top of today's standings. KEY continues to recover from last week's underwhelming Q2 results, FCX recoups all of Friday's losses aided in part by modest gains in copper prices, while HAL finds a decent advance in light of gains in crude oil futures.
Meanwhile, California-based surgical products firm Intuitive Surgical (ISRG 323.62, -13.04, -3.87%) is the worst performer in the S&P despite a dearth of corporate news; recall, last week the company reported mostly upside Q2 results.
Gold pressured by gains in dollar, yields
24-Jul-23 14:00 ET
Dow +211.83 at 35439.43, Nasdaq +47.66 at 14080.85, S&P +23.92 at 4561.53
[BRIEFING.COM] With about two hours to go on Monday the Nasdaq Composite (+0.34%) is at the bottom of the standings, albeit on gains of almost 48 points.
Gold futures settled $4.40 lower (-0.2%) to $1,962.20/oz, pressured slightly by modest gains in the dollar and yields.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $101.32.
Sitting tight with a big week ahead
The capital markets are gearing up for a big week of earnings reporting, economic data, and central bank policy decisions. That is just what we know will happen. There is always the "unknown factor" working in the background, too.
In any case, what we know at this early stage is that Treasuries are finding a bid, the U.S. Dollar Index is slightly higher, most commodity futures are trading higher, and the equity futures market is not revealing any rush to sell into the gains.
The S&P 500 futures are up seven points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 27 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 27 points and are trading 0.1% above fair value with the Dow riding a 10-session winning streak.
The equity market, then, will be settling into today's trade after the opening bell rings, looking to assess if the resilience to selling interest will persist.
Apple (AAPL) is providing some influential support, trading up 0.5% in pre-market action after Deutsche Bank and Wells Fargo raised their price targets to $210 and $225, respectively, as is fellow Dow component Chevron (CVX), which is up 1.0% after saying it sees Q2 EPS above the consensus estimate.
Still, market participants are showing some reserve in general, cognizant that Microsoft (MSFT) and Alphabet (GOOG) will report their June quarter results after the close on Tuesday and that the FOMC meeting will culminate with a policy announcement at 2:00 p.m. ET on Wednesday.
It has been accepted as foregone conclusion that the FOMC will agree to raise the target range for the fed funds rate another 25 basis points to 5.25-5.50%. That rate hike is "in the market" with the CME FedWatch Tool showing a 99.8% probability of such a move.
Where the mystery lies for the market is what Fed Chair Powell will communicate at his press conference and the tone he adopts to communicate it. That will be the ultimate market mover -- not the rate hike itself.
On a related note, market rates are moving lower in response to some preliminary July manufacturing and services PMI readings out of the eurozone that showed a continued weakening in business activity.
The eurozone's preliminary July HCOB Manufacturing PMI checked in at 42.7 (expected 43.5; last 43.4), marking its lowest reading since May 2020 and the thirteenth straight reading in contraction territory (i.e., below 50.0). The July S&P Global Composite PMI reading dropped to 48.9 from 49.9.
The preliminary July S&P Global US Manufacturing PMI and Services PMI readings for the U.S. will be released at 9:45 a.m. ET.
The 2-yr note yield is down three basis points to 4.82% ahead of a $42 billion 2-yr note auction at 1:00 p.m. ET, and the 10-yr note yield is down four basis points to 3.81%.
-- Patrick J. O'Hare, Briefing.com
Becton Dickinson's modest growth receives needed boost with FDA clearance of Alaris system (BDX)
Medical device company Becton Dickinson (BDX) is posting some healthy gains today after announcing that it received FDA 510(k) clearance for its updated Alaris Infusion System. Distribution of the Alaris system, which delivers fluids and medications intravenously to patients, was halted in early 2020 following several product recalls that involved both hardware and software. The company says that it has not only corrected the problems that caused the recalls, but it has also added new interoperability features, updated the hardware and software, and enhanced the system's cybersecurity capabilities.
The FDA clearance also prompted Raymond James to upgrade the stock to Outperform from Market Perform while raising the price target to $305. It is indeed a bullish development, but it will take some time to play out and to move the needle on the top-line.
- Importantly, the Alaris Infusion System has the largest installed base of customers in the field. When BDX stopped distribution and initiated the recalls, it was estimated that the Alaris system covered about 70% of patients on infusion pump therapy.
- Since hospitals and physician offices haven't upgraded their infusion systems for the past few years, a substantial replacement cycle exists, providing BDX with a much-needed growth catalyst. On that note, revenue inched higher by just 1.5% last quarter, which actually marks an improvement from the prior three quarters when revenue declined on a yr/yr basis.
- However, the company isn't expecting to receive a major boost this year, stating that it anticipates a return to full commercial operations and sales of the infusion business to happen over time. BDX's first priority is to replace existing systems that have faulty equipment or software, which could take a considerable amount of time to complete.
- The remediation of existing systems will also add to the company's expenses, although the initial investments to fully restore the infusion business are expected to be absorbed within its previously announced FY23 EPS guidance range.
- Next year, though, could see a material increase in Alaris-related revenue as it begins shipping new devices. As it currently stands, BDX's revenue is projected to grow by about 6%, but that estimate could be set to increase as Alaris sales are factored in.
- Looking a little further out, BDX commented that its confidence in achieving its financial target of 5.5%+ revenue growth and double-digit EPS growth in FY23 has increased with the Alaris FDA clearance.
The main takeaway is that BDX receiving FDA clearance for its Alaris Infusion System is a meaningful positive that has the potential to translate into a multi-year revenue driver.
Chevron pumps out some gains as record production in Permian Basis leads to upside EPS (CVX)
Chevron (CVX) is scheduled to release its 2Q23 earnings later this week on Friday morning, but the company took most of the mystery out of those results by issuing upside EPS guidance yesterday afternoon. Similar to competitor Exxon Mobil (XOM), booming production in the Permian Basin is driving CVX's earnings and cash flow generation. In fact, in Q2, production at CVX's Permian Basin assets increased by 11% yr/yr, reaching an all-time record of 772,000 barrels of oil equivalent (boe).
- With CVX poised to close on its acquisition of PDC Energy (PDCE) in August, the already robust production in the Permian will receive yet another boost. Along with additional acreage in the Denver-Julesburg basin in Colorado, PDCE's assets in the Permian will increase CVX's oil equivalent proved reserves by 10%.
- Furthermore, the addition of PDCE is expected to add $1.0 bln to CVX's annual free cash flow and to be accretive to EPS.
- A bump to CVX's EPS is a welcomed development. Although the company's Q2 earnings exceeded expectations, EPS plunged by 47% yr/yr to $3.08 as crude oil and natural gas prices slid lower.
- More specifically, crude is down by nearly 20% from last year, while natural gas prices have plummeted by over 65%.
- Earlier this month, XOM warned that the significant drop in commodity prices, combined with lower refining margins, would negatively impact its Q2 earnings. Between those two items, XOM's earnings took an estimated hit of between $3.8-$4.4 bln.
- It doesn't come as a surprise, then, that CVX's upstream segment experienced a 43% decline in earnings to $4.9 bln.
- Still, CEO Mike Wirth characterized Q2 as a strong quarter given the more challenging macroeconomic environment, adding that the company remains open to additional acquisitions. With the Board of Directors waiving the company's mandatory retirement age of 65 for Mr. Wirth, who is currently 62, executing another M&A deal is a possibility for Wirth before he steps down.
- We also believe that this announcement about waiving the required retirement age is helping the stock today because it provides stability and removes some uncertainty regarding CVX's leadership over the next few years. That's especially case since CVX doesn't have a clear successor currently in place.
The main takeaway is that, like XOM, CVX is cranking up production in the Permian Basin in order to mitigate the impact of sagging crude oil and natural gas prices. This ramp up of production generated better-than-feared Q2 earnings, which, along with news that its CEO will likely remain in place for the next few years, is pushing shares higher.
Domino's trades higher on Q2 results; delivery remains weak but DPZ excited about Uber deal (DPZ)
Domino's Pizza (DPZ +2%) is trading roughly flat after reporting mixed Q2 results this morning. The company reported slight upside with EPS but missed on revenue. DPZ had reported back-to-back very large EPS beats in Q4 and Q1, so this tiny beat was a bit of a letdown. Also, the company has now posted three consecutive top line misses.
- US comps are a closely watched metric with DPZ. They were positive, but just barely, at +0.1%, which was lapping -2.9% comps last year. That was below Q1's US comp of +3.6%. US comps were driven by a higher average ticket, including an average price increase across its US system of 3.9%. International comps fared better at +3.6%.
- Its US carryout business remained strong in Q2, with comps of +5.6% despite lapping a robust +14.6% last year. However, its US delivery business remains weak with comps down -3.5%, despite lapping weak -11.7% delivery comps last year. DPZ did not provide specific guidance for comps, but did say it expects US delivery comps in Q3 to be challenged similar to Q2. The good news is that DPZ expects a slight improvement in trend in Q4 as its updated loyalty program begins to roll out in September. Further out, DPZ is expecting considerable improvement in 2024 as a result of transaction growth from its Uber Eats (UBER) partnership and other initiatives.
- Speaking of the Uber Eats partnership, this was DPZ's first earnings call post-announcement and management sounded quite positive. Domino's expects most of the transactions gained from this deal will be incremental customers and sales and it should provide a meaningful increase in the number of customers who order Domino's delivery. Management believes the opportunity represents over $1 bln in incremental sales for its US business (we assume DPZ means end sales for its stores and franchisees, not the royalty it will receive).
- DPZ is also excited about the impact of a new delivery method. It launched Domino's pinpoint delivery in late June. This provides a new delivery option by allowing customers to receive their order nearly anywhere with the drop of a pin it the app. We wanted to quickly mention margins. The price increases and other cost efficiencies is helping DPZ recover its margins. Operating margin grew by 240 basis points yr/yr. DPZ now expects full year operating margin in 2023 to reach or exceed 2019 levels.
The stock is not seeing a big reaction today. We think there are a few cross currents going on. The EPS/revenue/comps numbers were not great and delivery remains a weak spot. However, we think investors were pleased with management's comments about delivery trends finally starting to improve in Q4 and especially next year when the Uber Eats partnership fully rolls out. Also, the stock had already gapped higher in early July on the Uber Eats deal, so some good news was likely priced in already.
Philips shares take a breather as declining Q2 comparable order growth sparks profit-taking (PHG)
Shares of Koninklijke Philips (PHG -5%) are taking a breather today despite the medical device manufacturer delivering beats on its top and bottom lines in Q2 while modestly raising its FY23 outlook. However, comparable order intake declined 8% in the quarter (-4% when excluding Russia), an ugly reversal from the flat comps posted last quarter; orders are a leading indicator for around 40% of PHG's revenue. After peers Johnson & Johnson (JNJ) and Abbott Labs (ABT) racked up solid figures in Q2 on decent volumes, the market priced in similar positive results for PHG, adding to today's dip. Meanwhile, near-term economic conditions remain highly uncertain, something management noted it is keeping a close eye on.
Still, zooming out, today's sell-the-news reaction looks more like a healthy pullback than a shocking trend reversal, given that shares rallied over 100% from November 2022 lows leading into PGH's Q2 report. Additionally, PHG registered several bright spots in the quarter that should not be so quickly overlooked.
- Comparable total sales growth jumped +9% on increased profitability and cash flows despite operating during a tricky macroeconomic and geopolitical environment. Western Europe experienced a +10% bounce in comps while North America registered +5%. Outside these regions in what PHG calls "Other mature geographies," comparable sales flourished at +18%. Meanwhile, in "Growth geographies," which include China, the Middle East, and Latin America, comps closely followed at +15%.
- Regarding China, PHG was encouraged by the comeback occurring in the region, projecting a double-digit contribution out of China for the year as recovery efforts trickle into Q3 and Q4.
- Alongside broad-based geographic growth, PHG boasted decent comparable sales growth across its operating segments: Diagnosis & Treatment (+12%), Connected Care (+6%), and Personal Health (+3%). The standout in the quarter was Personal Health, which finally returned to positive territory after two straight quarters of negative comps. Furthermore, although management noted that consumer demand remained subdued globally, it saw evidence of gradually improving sellout trends.
- Still, management conceded that growth in Personal Health was not as robust as it had hoped for in 1H23.
- Margins also saw sizeable gains in Q2. Adjusted EBITDA margins expanded by 490 bps yr/yr to 10.1%. Wage and component price inflation were still relatively high, climbing 260 bps. However, PHG's pricing actions and other productivity measures more than offset this headwind. Recall that PHG announced plans to eliminate 10,000 roles globally by 2025 earlier this year, with 7,000 gone by the end of 2023.
- Looking ahead, PHG's mostly healthy Q2 results provided the confidence needed to lift its FY23 outlook. The company now expects mid-single-digit comparable sales growth, up from low-single-digits, and adjusted EBITDA margins toward the upper end of its prior high-single-digit range.
Overall, after two prominent medical device firms, JNJ and ABT, reported buoyant Q2 numbers last week, investors were forecasting the positivity to spill over into PHG's Q2 results. Therefore, even though numbers were mostly uplifting, a few weak spots, including negative comparable order growth and underwhelming performance in Personal Health, are triggering profit-taking today.
American Express gets declined after missing on revenue and refraining from lifting guidance (AXP)
Despite achieving record highs in both revenue and EPS for Q2, credit card company American Express (AXP) is getting declined by investors today. After back-to-back earnings misses in Q1 and Q4, the company exceeded bottom-line expectations this quarter as it reined in expenses, but the EPS beat is being overshadowed by a slowdown in consumer spending that resulted in a revenue miss. Adding to investors' angst, AXP only reaffirmed its FY23 EPS guidance of $11.00-$11.40 even after surpassing Q2 earnings estimates.
- Business was still healthy for AXP as total network volume increased by 8% to $426.6 bln. The issue, though, is that the growth represents a material slowdown from last quarter when total network volume climbed by 14%.
- To be fair, AXP lapped a difficult yr/yr comparison in Q2 with total network volume jumping by over 30% in the year-earlier period.
- Still, the deceleration, combined with an increase in AXP's provision for credit losses to $1.2 bln from $1.1 bln in Q1, is painting a more muted picture for both the economy and for AXP's business.
- On the positive side, a more affluent customer base has made AXP more resilient to the effects of rising interest rates and inflation. Spending on travel and entertainment (T&E), especially for these higher-income consumers, has remained a priority as reflected in another double-digit increase in T&E spending (+14%) across AXP's network.
- The outlook here continues to be very bright, highlighted by a string of beat-and-raise earnings reports across the airline industry over the past week.
- The robust demand environment for travel, which is being driven by an ongoing shift in spending towards experiences, should also provide a boost for Visa (V) and Mastercard (MA) when those companies report earnings on July 25 and July 27, respectively.
- However, we do worry that slowing consumer spending may impact those companies more than AXP since they don't necessarily benefit from a customer base that has more disposable income.
- Like many consumers, AXP took a more cautious approach with spending in Q2. Following a 22% increase in Q1, expenses were up by a more modest 7% in Q2. The downside of this pullback in spending is that the company's revenue growth is also directly affected.
- With AXP cutting back on marketing-related investments, its top-line growth slowed to 12.4% -- its lowest growth rate in more than two years.
Overall, AXP delivered solid results considering the difficult macroeconomic environment, but its reluctance to raise its FY23 guidance and the slowdown in total network volume growth point to softer business conditions.
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