Market Snapshot
briefing.com
| Dow | 35275.91 | -6.52 | (-0.02%) | | Nasdaq | 13994.09 | +20.25 | (0.14%) | | SP 500 | 4512.49 | -2.17 | (-0.05%) | | 10-yr Note | -30/32 | 4.19 |
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| | NYSE | Adv 1078 | Dec 1792 | Vol 888 mln | | Nasdaq | Adv 1947 | Dec 2462 | Vol 6.0 bln |
Industry Watch
| Strong: Energy, Consumer Discretionary, Financials Communication Services |
| | Weak: Real Estate, Utilities, Materials, Financials, Industrials |
Moving the Market
-- Digesting another heavy slate of earnings news
-- Ongoing sense that the market is due for a pullback
-- Climbing Treasury yields keeping pressure on the stock market, the 10-yr note yield settling just 14 bps short of its October high
-- Choppy action in mega caps driving mixed index performance
-- Continued chatter about yesterday's downgrade of the U.S. credit rating by Fitch Ratings
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Closing Summary
03-Aug-23 16:35 ET
Dow -66.63 at 35215.80, Nasdaq -13.73 at 13960.11, S&P -11.50 at 4503.16
[BRIEFING.COM] The stock market had a mixed showing today with price action in the mega cap stocks driving a lot of the index level movement. The major indices exhibited losses right out of the gate, but climbed into positive territory by mid-day.
Market participants were digesting a huge batch of news today, including a huge slate of earnings reports since yesterday's close, an uptick in selling interest in longer-dated Treasuries, a 25-basis points rate hike by the Bank of England to 5.25%, and more chatter about yesterday's downgrade of the U.S. credit rating by Fitch Ratings.
Treasuries started to widened their losses after the release of a better than expected report on productivity and unit labor costs. Weekly initial jobless claims increased slightly, but still reflect a strong labor market. Meanwhile, the ISM Non-Manufacturing Index showed that services sector growth decelerated in July.
The 10-yr note yield rose 11 basis points to 4.19%, leaving the 10-yr yield 14 basis points below its October high. The 30-yr note yield rose 14 basis points to 4.30%.
Ultimately, the major indices closed with slim losses, showing some resilience amid ongoing calls for a pullback. Market breadth was negative, but modestly so. Decliners had a 3-to-2 lead over advancers at the NYSE and an 11-to-10 lead at the Nasdaq.
On the earnings front, Qualcomm (QCOM 118.70, -10.57, -8.2%) is a losing standout after issuing a tepid outlook in connection with its fiscal Q3 report.
The S&P 500 energy sector (+1.0%) shows the largest gain while the utilities (-2.3%) sector has fallen to the bottom of the pack.
Participants were also looking ahead to a few market-moving events on the horizon. Specifically, investors are eyeing earnings reports from Apple (AAPL) and Amazon.com (AMZN) after the close today, along with the the July Employment Situation Report released at 8:30 a.m. ET tomorrow.
- Nasdaq Composite: +33.4% YTD
- S&P 500: +17.3% YTD
- Russell 2000: +11.4% YTD
- S&P Midcap 400: +10.4% YTD
- Dow Jones Industrial Average: +6.2% YTD
Reviewing today's economic data:
- Q2 Productivity-Prel 3.7% (Briefing.com consensus 1.7%); Prior was revised to -1.2% from -2.1%; Q2 Unit Labor Costs-Prel 1.6% (Briefing.com consensus 2.7%); Prior was revised to 3.3% from 4.2%
- The key takeaway from the report is that the pickup in productivity and the deceleration in unit labor costs is a good combination for the soft-landing view.
- Weekly Initial Claims 227K (Briefing.com consensus 225K); Prior 221K; Weekly Continuing Claims 1.700 mln; Prior was revised to 1.679 mln from 1.690 mln
- The key takeaway from the report is that initial claims -- a leading indicator -- are not leading anyone to think yet that the labor market is cracking under the weight of the Fed's prior rate hikes, which is important because a strong labor market is key to a more upbeat economic outlook.
- July S&P Global US Services PMI - Final 52.3; Prior 54.4
- June Factory Orders 2.3% (Briefing.com consensus 2.0%); Prior was revised to 0.4% from 0.3%
- The key takeaway from the report is that business spending was on the softer side in June, evidenced by the slight 0.1% increase in new orders for nondefense capital goods excluding aircraft.
- July ISM Non-Manufacturing Index 52.7% (Briefing.com consensus 53.0%); Prior 53.9%
- The key takeaway from the report is that services sector activity continued to expand in July, but at a slower pace than the prior month. Even so, the report said that the majority of respondents remain cautiously optimistic about business conditions and the economy.
The Employment Report for July will be released tomorrow at 8:30 a.m. ET, which features:
- July Nonfarm Payrolls (Briefing.com consensus 200,000; prior 209,000)
- Nonfarm Private Payrolls (Briefing.com consensus 175,000; prior 149,000)
- Unemployment Rate (Briefing.com consensus 3.6%; prior 3.6%)
- Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.4%)
- Average Workweek (Briefing.com consensus 34.4; prior 34.4)
Notable earnings after the close
03-Aug-23 15:30 ET
Dow -39.56 at 35242.87, Nasdaq -6.95 at 13966.89, S&P -8.84 at 4505.82
[BRIEFING.COM] The market drifted somewhat lower over the last half hour.
Apple (AAPL) and Amazon (AMZN) headline the earnings calendar after the close. Amgen (AMGN), Gilead Sciences (GILD), Booking Holdings (BKNG), Block (SQ), Airbnb (ABNB), Stryker (SYK), Monster Beverage (MNST), Coinbase (COIN), DraftKings (DKNG), and Cloudflare (NET) are also among the notable companies reporting earnings.
The Employment Report for July will be released tomorrow at 8:30 a.m. ET, which features:
- July Nonfarm Payrolls (Briefing.com consensus 200,000; prior 209,000)
- Nonfarm Private Payrolls (Briefing.com consensus 175,000; prior 149,000)
- Unemployment Rate (Briefing.com consensus 3.6%; prior 3.6%)
- Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.4%)
- Average Workweek (Briefing.com consensus 34.4; prior 34.4)
Energy complex settles higher; Energy sector leads
03-Aug-23 15:05 ET
Dow -6.52 at 35275.91, Nasdaq +20.25 at 13994.09, S&P -2.17 at 4512.49
[BRIEFING.COM] The Dow and S&P 500 trade flattish while the Nasdaq outperforms.
Energy complex futures settled higher. WTI crude oil futures rose 2.2% to $81.56/bbl and natural gas futures rose 2.8% to $2.56/mmbtu. On related note, the S&P 500 energy sector remains atop the leaderboard by a decent margin, up 1.3%.
The consumer discretionary (+0.5%) and financials (+0.2%) sectors are the next best performers.
S&P 500 moderately lower; Clorox, Westrock ride earnings to solid gains
03-Aug-23 14:30 ET
Dow +7.29 at 35289.72, Nasdaq +15.68 at 13989.52, S&P -1.52 at 4513.14
[BRIEFING.COM] The S&P 500 (-0.03%) is now the lone lagging major average after the DJIA (+0.02%) squeaked ahead in the last half hour.
S&P 500 constituents Clorox (CLX 166.15, +13.68, +8.97%), Westrock (WRK 35.30, +2.76, +8.48%), and Cognizant Tech (CTSH 70.87, +5.53, +8.46%) pepper the top of the S&P. all following earnings.
Meanwhile, Expedia Group (EXPE 98.57, -19.43, -16.47%) is one of today's top decliners after rev growth missed market expectations.
Gold tracks weekly losses, Thursday's finish compounds declines
03-Aug-23 14:00 ET
Dow -21.58 at 35260.85, Nasdaq +7.69 at 13981.53, S&P -4.42 at 4510.24
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+0.06%) is still the lone gaining major average.
Gold futures settled $6.20 lower (-0.3%) to $1,968.80/oz as treasury yield gains apply some pressure, on track to post a -1.6% loss this week.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $102.48.
Rising rates creating headwinds for stock market
There isn't any shortage of news on the newswire. Corporate earnings results have come in fast and furious since yesterday's close, but the earnings results carrying the most market-moving weight come after today's close. That is when Apple (AAPL) and Amazon.com (AMZN) report.
In the meantime, there is a little bit of "analysis paralysis" hitting the market, as new developments like the Fitch Ratings downgrade of U.S. debt, a disappointing outlook from Qualcomm (QCOM), this morning's 25-basis points rate hike by the Bank of England to 5.25%, the 10-yr note yield clearing 4.10%, and another batch of pleasing economic data are all out there for consideration.
That isn't everything either. There is still the nagging notion that the stock market is due for a pullback after its big run, which is perhaps the key sentiment overhang at the moment.
Currently, the S&P 500 futures are down 16 points and are trading 0.4% below fair value the Nasdaq 100 futures are down 99 points and are trading 0.5% below fair value, and the Dow Jones Industrial Average futures are down 76 points and are trading 0.4% below fair value.
Those indications suggest the cash market will start today's session on a modestly lower note, not so much because there is a major pickup in selling interest but more so because there is a subsidence of buying interest.
There is some finger pointing at the 10-yr note yield, which is at 4.16%, up another eight basis points from yesterday's settlement and up 19 basis points for the week. The trend there is less of a friend to the stock market, as it is creating a competitive headwind for stocks, along with yields for shorter-dated securities that are north of 5.40%, and stirring some valuation angst for the more highly-valued growth stocks.
This morning's data created a spin of sorts for Treasury investors. The good economic news is that initial jobless claims remained well below recession-like levels and Q2 productivity sported a healthy 3-handle while unit labor costs sported an inflation-pleasing 1-handle.
Briefly, initial jobless claims for the week ending July 29 increased by 6,000 to 227,000 (Briefing.com consensus 225,000). Continuing jobless claims for the week ending July 22 increased by 21,000 to 1.700 million.
The key takeaway from the report is that initial claims -- a leading indicator -- are not leading anyone to think yet that the labor market is cracking under the weight of the Fed's prior rate hikes, which is important because a strong labor market is key to a more upbeat economic outlook.
The same can be said for productivity gains and there were gains in the second quarter. Productivity increased 3.7% (Briefing.com consensus 1.7%), with output up 2.4% and hours worked down 1.3%. Unit labor costs, meanwhile, were up 1.6% (Briefing.com consensus 2.7%), reflecting a 5.5% increase in hourly compensation and a 3.7% increase in productivity.
The key takeaway from the report is that the pickup in productivity and the deceleration in unit labor costs is a good combination for the soft-landing view.
The latter point notwithstanding, the equity futures market hasn't been energized by this thinking, cognizant that the soft-landing view has been an important driver of the equity rally already this year.
Now, the market is fixed on the thinking that rising rates -- and maybe even a continued increase in the Fed's policy rate -- are going to get in the way of further multiple expansion. Accordingly, some of the bravado witnessed in the runup this year, particularly for the Nasdaq and market-cap weighted S&P 500, has been tempered for the time being.
-- Patrick J. O'Hare, Briefing.com
Shopify's "reshaping" efforts pay off in Q2, but stock squarely in sellers' sights (SHOP)
As Shopify's (SHOP) growth has skidded lower following a boom period during the height of the pandemic, the e-commerce company has worked to "reshape the business", as CEO Harley Finkelstein describes it, and the benefits of those efforts were evident in last night's better-than-expected Q2 earnings report.
- Despite the challenging macroeconomic backdrop, gross merchandise volume (GMV) grew at a healthy rate of 18% (in constant currency) to $55.0 bln, paving the way for SHOP to comfortably exceed revenue expectations.
- Meanwhile, SHOP's cost-cutting actions -- including a 20% workforce reduction that was announced last quarter -- and the divestiture of logistics business pushed gross margin higher by 180 bps qtr/qtr to 49.3%.
- Along with the outperformance on the top-line, SHOP's improved margins helped it to surpass EPS estimates for the third quarter in a row.
Beating analysts' estimates is a definite plus, but what really stands out to us is the reacceleration in SHOP's growth rates.
- In Q2, revenue growth reached nearly 31%, up from the low-to-mid-20% growth SHOP achieved in the 3Q22-1Q23 timeframe. While SHOP's Q3 guidance calls for a slight slowdown to 25% growth (excluding the impact from the sale of the logistics business), it's worth noting that the company has handily topped revenue expectations in each of the past four quarters.
There are a couple primary drivers behind SHOP's stronger growth.
- First, the company is experiencing higher attach rates across its merchant platform with business owners tacking on additional services like payments, installments, capital, and taxes. In Q2, SHOP's revenue attach rate was 3.08% compared to 2.76% in the year-earlier quarter.
- Second, SHOP implemented a price increase at the end of April and merchant retention has been more robust than it anticipated. As a result, Subscription Solutions generated strong revenue growth of 21% to $444 mln while Monthly Recurring Revenue (MRR) jumped by 30% to $139 mln.
- The price increases are expected to continue benefiting the Subscription Solutions business and MRR for the remainder of the year.
Even as SHOP's revenue growth accelerates, the company is still taking a cautious approach with spending as it moves towards an asset light model.
- On an adjusted basis, operating expenses declined by 3% yr/yr to $818 mln, primarily due to lower marketing spending. SHOP plans to keep a tight lid on expenses in Q3, too, forecasting expense dollars to be flat to up slightly compared to Q2.
Considering all this good news, it is surprising that the stock is trading sharply lower today. We believe this is mainly a function of traders locking in gains after the stock rallied by 35% since its last earnings report. Furthermore, stocks with rich valuations such as SHOP -- its trailing P/S is roughly 15x -- are easy targets when the market becomes more volatile. Overall, though, the fundamental picture continues to brighten for SHOP and we believe the stock could rebound when market conditions improve.
DoorDash trades modestly higher following solid report and guidance raise (DASH)
DoorDash (DASH +1%) is trading modestly higher following its Q2 report last night. The food delivery service giant reported solid results and increased FY23 adjusted EBITDA guidance.
- The headline numbers do not jump off the page as DASH reported a GAAP loss that was a bit larger than expected. We like the top line growth of 33% to $2.13 bln, which was better than expected. Total orders rose 25% yr/yr to 532 mln while Q2 Marketplace GOV rose 26% yr/yr to $16.47 bln vs $15.9-16.2 bln prior guidance. Q2 set records for total orders, marketplace GOV and revenue.
- Since DASH does not provide adjusted EPS, we think it is important for investors to focus more on adjusted EBITDA as the better profitability metric because it's a clean adjusted number and DASH provides guidance for it. And on the score, DASH did well, growing 171% yr/yr to $279 mln, well above the high end of $180-230 mln prior guidance.
- The guidance was a bright spot with DASH expecting Q3 adjusted EBITDA of $220-270 mln. The warmer months tend to be seasonally weaker for DASH since fewer people order from home, so we think that guidance was quite good, especially with the delivery industry being weak generally, just ask Domino's (DPZ). DASH also boosted full year adjusted EBITDA guidance pretty substantially to $750 mln to $1.05 bln from $600-900 mln prior guidance.
- DASH has been making significant investments to improve its service in non-restaurant categories and international markets. Non-restaurant categories saw a lot of growth during the pandemic when it launched at convenience retailers (Walgreens, CVS, 7-Eleven etc.) Also, over the last 2.5 years, DASH has built a multibillion-dollar grocery business from scratch. DASH says it's growing faster than every other platform and is gaining share dramatically in virtually all categories and certainly in grocery. DASH is also seeing a lot of growth in categories outside of food, like sporting goods with Dick's or office supplies with Office Depot or the pet category with PetSmart and Petco.
Overall, we think this was a good report from DoorDash, especially its upside revenue and EBITDA metrics. And the FY23 guidance was pretty substantial, well above the Q2 upside, which implies a 2H raise. Delivery is a tough space right now. DPZ has noted consumers moving away from delivery to avoid fees/tips. However, DASH has been doing well. We are a little surprised the stock is not up more. However, the stock has run quite a bit, up 50% since late April. So perhaps a good result was baked in the cake already. On a final note, we're a little disappointed DASH did not provide its take on the recent DPZ/UBER deal, but we assume they are not too worried about it.
PayPal sells off despite ringing up solid headline Q2 results; margins were a weak point (PYPL)
PayPal (PYPL -11%) rings up decent upside across the board in Q2, registering beats on its top and bottom lines and guiding Q3 figures ahead of analyst expectations. The global payment processing giant also reiterated its FY23 adjusted EPS forecast of $4.95.
So why are shares selling off?
- PayPal is amid heightened macroeconomic uncertainty and stiff competition. Inflation hinders discretionary spending, with many retailers discussing how big-ticket items have been particularly affected. Meanwhile, other tech giants, like Apple (AAPL) and Google (GOOG), offer payment platforms boasting attractive cash back and savings accounts, providing competitive yields. PayPal may be losing some of its active users to big tech.
- Speaking of which, PayPal's total active accounts remained stagnant in Q2, expanding by just 2.0 mln yr/yr but slipping by 2.0 mln sequentially to 431 mln.
- Non-GAAP operating margins expanded by just 228 bps yr/yr to 21.4%, slightly below PayPal's 22.0% forecast. Positively, like the broader industry, PayPal is noticing a normalization of its credit portfolio to pre-COVID delinquency levels. However, the company started seeing a deterioration in its business loans portfolio, which weighed on margins. PayPal is taking the appropriate actions to address the deterioration, tightening originations. On the bright side, PayPal's business loans portfolio represents less than 15% of its total net credit receivables.
- Meanwhile, transaction margin contracted to 45.9% from 48.7% in the year-ago period. A higher mix of unbranded checkout versus branded certainly weighed on transaction margins in the quarter. PayPal expects its margin profile to improve over the long term, helped by an acceleration in branded checkout, which would coincide with e-commerce growth.
- PayPal is also amid a CEO hunt, keeping a fair level of uncertainty over the stock. Outgoing CEO Daniel Schulman commented that the company is in the final stages of hiring a new CEO. However, he did not provide an exact timeline on when to expect a successor.
There was still plenty to be optimistic about in Q2. Top and bottom-line figures of $7.29 bln, a 7.1% jump, and $1.16 remained consistent with last quarter's performance despite ongoing economic headwinds. Domestic and international sales growth was positive, climbing 9% in the U.S. and 5% overseas. PayPal is also on track to hit its annual expense guidance, allowing it to deliver 100 bps of non-GAAP operating margin improvement and driving its reaffirmed FY23 EPS outlook.
Bottom line, PayPal's Q2 results were not overly alarming. Instead, they were more of a reflection of unfavorable global economic conditions. Following today's sell-the-news reaction, we think that PayPal may be carving out a bottom. Inflationary pressures are easing, potentially boosting discretionary and e-commerce spending. After taking appropriate measures, PayPal also saw early positive signs in its business loans portfolio. Finally, a CEO will eventually be named, removing a layer of uncertainty.
Qualcomm gets dropped after issuing tepid outlook as handset recovery remains elusive (QCOM)
In the past few years, chip maker Qualcomm (QCOM) has sharpened its focus on diversifying its revenue streams in an effort to lessen its dependence on a handset market that's prone to experiencing extreme ups and downs. Although QCOM has made good progress in this endeavor, especially in the automotive market, handsets still account for over half of its revenue, which worked against the company once again in 3Q23.
- Unlike the PC market, the handset market has made little improvement in working through the high inventory levels that are plaguing manufacturers. The main issue is that China -- QCOM's largest geographic market at about 60% of sales -- hasn't recovered as strongly as anticipated after lifting most of its COVID-related restrictions.
- Those who were hoping for a more optimistic outlook last night were likely disappointed when CFO Akash Palkhiwala stated during the earnings call that inventory drawdown dynamics will be a factor through the end of the calendar year.
- As such, QCOM issued cautious Q4 revenue guidance of $8.1-$8.9 bln, which is below expectations at the midpoint.
It wasn't only the handset market that struggled in Q3.
- IoT revenue plunged by 24% to $1.5 bln, matching last quarter's decline. Similar to handsets, the IoT market is contending with elevated inventory levels in the channel due to weak demand among consumer and industrial customers.
- While automotive was the standout performer once again, generating double-digit revenue growth for the eleventh consecutive quarter, it also fell a bit short of analysts' expectations. Revenue grew by a more modest 13% to $434 mln, compared to growth of 20% and 58% in Q2 and Q1, respectively.
- On the positive side, QCOM secured more than ten new design wins with leading automakers for its next-gen digital cockpit and telematics systems.
Overall, though, most of QCOM's customers are taking a cautious approach with their orders, causing the company to take a conservative stance for the remainder of the calendar year. Accordingly, the company plans to take additional cost reduction actions, including another round of layoffs.
The only notable bright spot was QCOM's commentary regarding its opportunities in Gen AI at the edge.
- CEO Cristiano Amon highlighted the company's favorable positioning as AI use cases proliferate to the edge, stating that "on-device AI has the potential to drive an inflection point across all our products."
- As an example, QCOM has been collaborating with Meta Platforms (META) on bringing META's Llama 2 large language model to smartphones and PCs, using QCOM's Snapdragon chipsets. This is set to begin in 2024.
The main takeaway is that this was another discouraging quarterly report for QCOM as the handset recovery that was hoped for in CY23 slips further into the future. Until the Chinese economy begins to recover at a stronger rate, QCOM's financial performance is likely to continue to disappoint.
Wayfair bounces on huge Q2 earnings upside as cost-saving actions fuel a return to profitability (W)
Wayfair (W +18%) is not lounging around today after smashing Q2 earnings estimates and returning to positive adjusted EBITDA, a testament to the e-commerce home furniture retailer's success in implementing its numerous cost-savings initiatives. Last quarter, Wayfair rocketed higher after projecting a return to profitability in Q2, announcing that workforce layoffs and operational improvements, including lowering incidence rates and enhancing shipping methods, would result in $1.4 bln in annualized cost savings. Therefore, even though investors were pricing in this milestone, actually accomplishing it is still noteworthy.
Alongside adjusted EBITDA of $128 mln, translating to 4% margins, Wayfair also delivered several other highlights, which, when mixed with short interest of around 30%, creates a recipe for substantial share appreciation.
- One notable highlight was Wayfair's EPS of $0.21, its first quarter operating in the green since 3Q21 and its widest beat since 2Q21. Meanwhile, although revenue fell 3.4% yr/yr to $3.17 bln, it was a solid improvement over the 7.3% dip last quarter. Also, sales jumped 14.3% sequentially. Management commented that after a slow start to the spring, the outdoor shopping season picked up steam as the quarter progressed.
- Wayfair's improving top line was also notable since it outperformed the broader competition, which the company estimates was down 10-20% during the quarter. Wayfair's U.S. segment stood out, outpacing total sequential growth with net revs increasing by 15.3%. Better availability, fast delivery, and targeted pricing were positive factors in Wayfair's sales success in Q2.
- Meanwhile, bottom-line performance stemmed from Wayfair's commitment to removing unnecessary costs and streamlining operations. Gross margins were 31.1% in the quarter, Wayfair's highest print. Unlike during the pandemic, management is confident that margins are now durable since they were the direct result of over 70 cost-saving initiatives.
- Looking out to Q3, Wayfair anticipates its upbeat momentum to carry forward. The company forecasted a return to positive yr/yr net revenue growth in Q3-- around mid-single digits -- on improving active customer counts, which totaled 21.8 mln in Q2, a 7.6% decline compared to a 14.6% drop in Q1.
- Wayfair's adjusted EBITDA margin projection of low single-digits for Q3 was a minor hiccup, as it implied a slightly lower figure than in Q2. However, this was quickly shrugged off since Wayfair is staring at a clear trajectory toward sustainable mid-single-digit adjusted EBITDA margins, a feat that seemed far in the distance just two quarters ago.
Heading into its Q2 report, Wayfair was facing elevated expectations as homebuilders signaled a resilient housing market, and investors were excited about the potential return to profitability. Wayfair easily cleared this high bar, demonstrating its ability to quickly pivot during a chaotic time. Plenty of macroeconomic uncertainties remain ahead; many firms exposed to the housing industry recently cautioned about a soft demand environment. However, in the age of online shopping, Wayfair has carved out a sturdy leadership position to efficiently deliver bulky furniture, an advantage that should serve it well, especially once consumers feel more confident in their budgets.
Finally, peers La-Z-Boy (LZB) and Williams-Sonoma (WSM) are ticking higher today on Wayfair's buoyant Q2 report. The two companies report JulQ earnings on August 22 and 23, respectively.
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