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Market Snapshot
briefing.com
| Dow | 35289.78 | -183.26 | (-0.52%) | | Nasdaq | 13870.92 | -123.87 | (-0.89%) | | SP 500 | 4496.19 | -23.52 | (-0.52%) | | 10-yr Note | +5/32 | 4.03 |
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| | NYSE | Adv 1054 | Dec 1759 | Vol 849 mln | | Nasdaq | Adv 1683 bln | Dec 2647 | Vol 5.3 |
Industry Watch
| Strong: Health Care, Energy, Utilities |
| | Weak: Materials, Financials, Consumer Discretionary, Information Technology |
Moving the Market
-- Reacting to the news that Moody's downgraded the credit ratings for 10 small and mid-sized U.S. banks and changed its outlook to negative for 11 additional banks
-- Digesting China's weak trade data
-- UPS (UPS) disappointing with its FY23 revenue outlook, citing weakening e-commerce demand and an expectation for lower volumes following the improved labor contract
-- Indiscriminate selling seemingly consistent with normal consolidation efforts
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Closing Summary
08-Aug-23 16:30 ET
Dow -158.64 at 35314.40, Nasdaq -110.07 at 13884.72, S&P -19.06 at 4500.65
[BRIEFING.COM] Today's trade had a negative bias following yesterday's gains. The major indices all closed near their highs of the session, albeit still sporting losses, after bouncing back from their worst levels of the day. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite had been down as much as 1.2%, 1.3%, and 1.6%, respectively, at their morning lows, but ultimately finished down just 0.4%, 0.5%, 0.8%.
Losses were driven by indiscriminate selling that seemed consistent with normal consolidation efforts. There was comparable weakness by market cap and factor, along with losses in eight out of of 11 S&P 500 sectors and 21 of 30 Dow components.
The Vanguard Mega Cap Growth ETF (MGK) fell 0.3% and the Invesco S&P 500 Equal Weight ETF (RSP) registered a loss of 0.5%. The Russell 3000 Value and Growth Indexes both declined 0.5%.
Concerns about global growth created an excuse for market participants to take some money off the table. Those concerns were stirred by weaker than expected trade data out of China for July that featured a 14.5% year-over-year decline in exports and a 12.4% year-over-year decline in imports. The latter marked the fastest contraction in over two years.
Adding onto those concerns, UPS (UPS 180.55, -1.60, -0.9%) issued disappointing FY23 revenue outlook, citing weakening e-commerce demand and an expectation for lower volumes following the improved labor contract for the lowered guidance.
Weak bank stocks also contributed to the negative bias after Moody's downgraded the credit ratings for 10 smaller U.S. banks and put some bigger banks on watch for downgrade. The SPDR S&P Regional Banking ETF (KRE) fell 1.3% and the SPDR S&P Bank ETF (KBE) fell 1.3%.
The S&P 500 financials sector (-0.9%) closed near the bottom of the pack, alongside materials (-1.1%) and consumer discretionary (-0.9%).
The health care sector (+0.8%), meanwhile, logged the biggest gain, propelled by a big move higher in Eli Lilly (LLY 521.60, +67.52, +14.9%) after it topped Q2 expectations and raised FY23 guidance.
The 2-yr Treasury note yield, which hit 4.72% earlier, fell two basis points to 4.75%. The 10-yr note yield, which slipped to 3.98%, fell five basis points to 4.03%. Earlier, Philadelphia Fed President Harker (FOMC voter) suggested in a speech that the Fed could be done raising rates, but if so, would likely need to hold them where they are for awhile and that he doesn't see any likely circumstance for an immediate easing of the policy rate.
- Nasdaq Composite: +32.7% YTD
- S&P 500: +17.2% YTD
- Russell 2000: +10.6% YTD
- S&P Midcap 400: +10.2% YTD
- Dow Jones Industrial Average: +6.5% YTD
Reviewing today's economic data:
- July NFIB Small Business Optimism Survey 91.9 (Briefing.com consensus 92.1); Prior 91.0
- June Trade Balance -$65.5 bln (Briefing.com consensus -$65.1 bln); Prior was revised to -$68.3 bln from -$69.0 bln
- The key takeaway from the report is the lack of growth in exports and imports, which is indicative of weaker demand overall at home and abroad.
- June Wholesale Inventories -0.5% (Briefing.com consensus -0.3%); Prior 0.0%
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -3.0%)
- 10:30 ET: Weekly crude oil inventories (prior -17.1 mln)
Treasuries settle with gains; econ data on Wednesday
08-Aug-23 15:35 ET
Dow -176.59 at 35296.45, Nasdaq -137.59 at 13857.20, S&P -24.68 at 4495.03
[BRIEFING.COM] The major indices continue to climb, albeit still sporting losses.
Treasuries settled with gains. The 2-yr note yield fell two basis points to 4.75% and the 10-yr note yield fell five basis points to 4.03%.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -3.0%)
- 10:30 ET: Weekly crude oil inventories (prior -17.1 mln)
Indiscriminate selling continues
08-Aug-23 15:00 ET
Dow -183.26 at 35289.78, Nasdaq -123.87 at 13870.92, S&P -23.52 at 4496.19
[BRIEFING.COM] The major indices are little changed over the last half hour.
Selling efforts remain fairly indiscriminate. The S&P 500 is down 0.6%; the Vanguard Mega Cap Growth ETF (MGK) is down 0.6%; and the Invesco S&P 500 Equal Weight ETF (RSP) is down 0.7%. The Russell 3000 Growth Index is down 0.8% while the Russell 3000 Value Index trades down 0.7%.
Energy complex futures settled higher. WTI crude oil futures rose 1.3% to $82.96/bbl and natural gas futures rose 2.2% to $2.78/mmbtu.
Medical device stocks weaker today, Merck spinoff Organon Q2 print/guidance impresses
08-Aug-23 14:30 ET
Dow -229.04 at 35244.00, Nasdaq -139.22 at 13855.57, S&P -30.10 at 4489.61
[BRIEFING.COM] The S&P 500 (-0.67%) is modestly off levels from the previous half hour, still down about 30 points.
S&P 500 constituents Dexcom (DXCM 108.58, -12.39, -10.24%), Insulet (PODD 239.15, -21.70, -8.32%), and Teleflex (TFX 230.04, -10.13, -4.22%) pepper the bottom of the index. DXCM and PODD (reports tonight) are weaker on Tuesday in view of SELECT trial results in obesity research from Novo Nordisk A/S (NVO 187.34, +25.98, +16.10%) and Eli Lilly's (LLY 518.33, +64.25, +14.15%) Mounjaro, while TFX also lags alongside general weakness in medical devices (IHI 53.21, -1.13, -2.08%).
Meanwhile, Merck spinoff Organon (OGN 23.83, +2.03, +9.31%) is near the top of the S&P following this morning's beat-and-raise report.
Gold slumps amid stronger dollar
08-Aug-23 14:00 ET
Dow -261.05 at 35211.99, Nasdaq -156.46 at 13838.33, S&P -35.11 at 4484.60
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-1.12%) holds today's worst losses among the major averages, down about 156 points.
Gold futures settled $10.10 lower (-0.5%) to $1,959.90/oz, juxtaposed against strength in the dollar which is slightly offset somewhat by weakness in yields.
Meanwhile, the U.S. Dollar Index is up about +0.5% to $102.54.
A reversal of rebound fortune
The stock market had a good day on Monday, rebounding on the back of blue chip strength, albeit on very light volume. There is still a chance that today could be another good day, but things are not going to look good at the open.
Currently, the S&P 500 futures are down 31 points and are trading 0.7% below fair value, the Nasdaq 100 futures are down 108 points and are trading 0.7% below fair value and the Dow Jones Industrial Average futures are down 246 points and are trading 0.7% below fair value.
The reversal of rebound fortune has been triggered by several catalysts with linkages to growth concerns:
- China reported some weak trade data for July that featured a 14.5% year-over-year decline in exports and a 12.4% year-over-year decline in imports. The latter marked the fastest contraction in over two years.
- UPS (UPS) disappointed with its FY23 revenue outlook, citing weakening e-commerce demand and an expectation for lower volumes following the improved labor contract. UPS is down 4.1%.
- Moody's downgraded the credit ratings for 10 smaller U.S. banks and put some bigger banks on watch for downgrade, citing concerns about interest rates and asset-liability management risk
- U.S. exports and imports in June were both lower than exports and imports in May.
One can see the growth worries in the commodities market. WTI crude futures are down 2.3% to $80.10/bbl and copper futures are down 2.8% to $3.73/lb. They are also apparent in the Treasury market and in the strength of the dollar.
The 2-yr note yield is down three basis points to 4.74% and the 10-yr note yield is down 10 basis points to 3.98%. The U.S. Dollar Index is up 0.7% to 102.72 with the greenback benefiting largely at the expense of the euro. The euro is on the weaker side of things at the moment following the news that Italy's government is imposing a windfall tax (40% levy on excess profits) on Italian banks.
Although Treasuries moved overnight on growth worries, Philadelphia Fed President Harker (FOMC voter) has provided some added support, noting in a speech today that he thinks the Fed may be at a point where it can be patient and hold rates steady, absent any alarming new data between now and mid-September.
Mr. Harker also asserted, though, that he thinks rates, if they are at a point of holding steady, will need to stay there for a while and that he does not see any likely circumstance for an immediate easing of the policy rate.
There was some easing in the trade deficit in June. It narrowed to $65.5 billion (Briefing.com consensus -$65.1 billion) from an upwardly revised $68.3 billion (from -$69.0 billion), as exports were $0.3 billion less than May exports and imports were $3.1 billion less than May imports.
The key takeaway from the report is the lack of growth in exports and imports, which is indicative of weaker demand overall at home and abroad.
Drug maker Eli Lilly (LLY), however, isn't seeing weaker demand. It reported a 28.1% year-over-year increase in revenue for the second quarter in conjunction with better-than-expected earnings results. In turn, Eli Lilly raised its FY23 revenue and EPS guidance above analysts' consensus estimates. Shares of LLY are up 8.6% in pre-market trading.
-- Patrick J. O'Hare, Briefing.com
Palantir Technologies pulls back on a mild Q2 report; still amid a favorable AI tailwind (PLTR)
After an over +180% gain on the year as of yesterday's close, Palantir Technologies (PLTR -4%) shares are taking a breather today on in-line Q2 results and narrowed FY23 sales guidance. The data analytics firm deeply rooted in AI did post its third-straight quarter of GAAP profitability, reiterating profitability for the rest of FY23, making it eligible for inclusion in the S&P 500 following Q3. PLTR also authorized up to $1.0 bln for share repurchases.
So why are shares dropping? For starters, Q2 results were mild, registering earnings and sales consistent with analyst forecasts. Additionally, PLTR's U.S. government business delivered disappointing performance, with revs slipping by 4% sequentially. International commercial sales also lagged, as growth among European commercial enterprises remained muted. Also, although PLTR's FY23 revenue forecast of $2.212 bln was slightly ahead of consensus, it represented just a $2.0 mln bump from the midpoint of its prior forecast of $2.185-2.235 bln. After shares nearly tripled in value leading into PLTR's Q2 results, giving it a forward P/E multiple of 84x, these results are not cutting it.
Still, the stock did see a minor gain immediately following Q2 numbers, underscoring several highlights from the quarter.
- PLTR achieved a significant revenue milestone in Q2, surpassing $2.0 bln in TTM revenue for the first time. PLTR's top 20 customers partly fueled this milestone, with TTM revenue growing 15% yr/yr to $53 mln per customer.
- U.S. commercial revenue growth of 20% yr/yr, doubling total commercial sales growth, was also a contributor. PLTR noted that 54% of its U.S. commercial sales stemmed from customers that signed on in 2021, a testament to the company's competitive edge and the stickiness of its software. Furthermore, U.S. commercial customers expanded by 4% sequentially to 161, marking the 10th consecutive quarter of sequential growth.
- While U.S. Government performance underperformed PLTR's expectations, International government sales shined, improving by 31% yr/yr, an excellent acceleration from the +11% growth posted last quarter. The reacceleration was driven by the U.K., with work done across the NHS and the U.K. Ministry of Defense.
Overall, PLTR's Q2 results were mild, insufficient to extend its current rally. Nonetheless, the stock is holding up relatively well, and we view today's drop as a healthy pullback. PLTR is amid several tailwinds, especially surrounding its Artificial Intelligence Platform or AIP. Without getting too deep into the weeds, management noted that AIP will be transformational for its customers as it takes advantage of large language models (LLMs), like Chat-GPT, and pairs it with algorithmic tools to calculate profitability, lead times, and other important workflows that LLMs cannot do alone. Even if the AI craze starts to cool, PLTR is cementing itself as a gold standard in this space, positioning itself for long-term success.
Datadog rolling over as spending slowdown from larger customers weighs on outlook (DDOG)
Sentiment was generally positive heading into Datadog's (DDOG) Q2 earnings report, bolstered by the buyout of competitor New Relic (NEWR) on July 31, and the encouraging commentary from Amazon (AMZN) regarding Amazon Web Services (AWS) during its earnings call last week. While the stabilization of growth for AWS -- a key partner for DDOG -- did help translate into solid upside Q2 results for DDOG, it didn't portend to a strong revenue outlook.
- The company's top-line guidance of $521-$525 mln for Q3 fell short of expectations, and its FY23 forecast of $2.05-$2.06 bln was slightly below its prior guidance of $2.08-$2.10 bln. For a stock with a lofty P/S of about 19x, the soft revenue guidance is especially problematic, adding fuel to a fire sale that's enveloping the stock.
- Notably, the fallout from DDOG's disappointing outlook is spreading to other data analytics and monitoring companies with shares of Snowflake (SNOW), Splunk (SPLK), and MongoDB (MDB) also sinking sharply lower.
- Of particular concern is that DDOG CEO Olivier Pomel stated that some of the company's larger cloud-native customers are scrutinizing their costs more, putting relatively more pressure on the usage rates for that group.
- Like other data analytics companies, including SNOW and AWS, DDOG charges customers on a consumption basis. Therefore, when enterprises are feeling more cautious about the economy, they can scale back on their usage, negatively impacting revenue for DDOG and its peers.
- The good news is that the company says it's starting to see signs of stabilization among the customers who began optimizing their cloud and observability usage a year ago. Furthermore, DDOG is still having plenty of success adding new customers. In fact, from a new customer bookings perspective, the company had its strongest Q2 in its history.
- Over time, those new customers are also likely to turn into large accounts as they adopt more of DDOG's products. In Q2, about 82% of the company's customers were using two or more products, compared to 79% a year ago, and 45% of its customers were using four or more products, up from 37% a year ago. This indicates that DDOG's land-and-expand approach is still working quite well, despite the macro-related headwinds.
Looking down the road a bit further, DDOG's growth could receive a boost from its new AI offerings, including LLM Observability and Bits AI assistant, and its AI-related integrations. For the time being, though, a more cautious spending approach from the company's largest cloud customers is expected to weigh on its growth.
Skyworks heads lower following earnings; guidance not bad but inventory correction remains (SWKS)
Skyworks Solutions (SWKS -3%) is trading lower following its Q3 (Jun) results last night. This supplier of semiconductors used for wireless connectivity (smartphones, tablets, IoT, automotive, medical devices etc.) beat on EPS, but revenue was just in-line. The Q4 (Sep) guidance was decent with upside EPS and in-line revenue. After a guide down last time, we think this was encouraging to see. In addition to earnings, SWKS also raised its dividend by 10%, which sports a current yield of 2.6%.
- We had some concerns going in because its largest customer is Apple (AAPL) at 58% of FY22 revenue. Apple's iPhone results last week were below expectations. Also, SWKS has been going through a multi-quarter inventory correction, which has been weighing on margins due to underutilization. As such, we think the results were decent overall.
- Mobile represented approximately 59% of JunQ revenue, with broad content gains across its largest customer product portfolio (presumably Apple), offset by ongoing weakness in demand from the Android ecosystem as OEMs continue to reduce inventories. The other 41% of revenue came from what SWKS calls Broad Markets. This segment saw strong contribution from automotive, infrastructure and industrial markets.
- Non-GAAP gross margin fell to 47.5% from 51.2% a year ago, in-line with expectations. The decline was mostly driven by temporary factory underutilization as the company right sizes its inventory levels. SWKS is guiding to 47-48% SepQ as it continues to reduce internal inventory. Historically, Skywork's gross margins are in the low-50s, but macro headwinds and a softer demand environment (especially Android) is causing those customers to reduce their internal inventory levels plus SWKS is reducing its own inventory levels.
- SWKS expects Android will eventually recover and the company will get back to more normalized levels of internal inventory. At that point, SWKS will increase factory utilizations and ramp up gross margin. SWKS expects gross margins over time will gradually improve to the low-50s and then SWKS will continue to work towards its target model of 53%.
- There was some good news when asked about the inventory correction during the call. SWKS said that it feels the bottom is here for most of the markets it serves and it should see improving financials going forward. And that was evident in the SepQ guidance, which SWKS described as "pretty strong" relative to its peers. SWKS concedes it has been a tough cycle in semis and tech in general, but SWKS says its view now is a little bit more optimistic than it was last quarter for sure.
Overall, this was a so-so quarter. It was definitely not as bad as we feared it might be, especially the guidance. The likely iPhone 15 launch this fall is seemingly bolstering its guidance. On the other hand, the inventory correction continues. It was heartening to hear the company say it believes it is at the bottom but it also sounds like margins will remain pressured in the next couple of quarters. We hope SWKS keeps getting more optimistic on the SepQ call.
Eli Lilly soars to all-time highs as surging Mounjaro sales fuel beat-and-raise Q2 report (LLY)
After issuing one of its best earnings reports in recent history that featured its strongest top-line growth in over five years, Eli Lilly (LLY) is soaring to all-time highs. The pharmaceutical company's impressive beat-and-raise performance was primarily fueled by just a few drugs in its portfolio with Mounjaro especially standing out.
- Approved in May of 2022 for the treatment of type 2 diabetes in adults, Mounjaro has become incredibly popular as a weight-loss drug, much like Novo Nordisk's (NVO) Ozempic. Even though Mounjaro hasn't received FDA approval to specifically treat obesity yet -- that could happen as early as late 2023 -- sales are booming, climbing to nearly $980 mln in Q2.
- If that anticipated approval does indeed come, Mounjaro will challenge LLY's Trulicity (sales -5% in Q2), an injectable treatment for diabetes, for the company's top-selling drug.
Back in 3Q22, CFO Anat Ashkenazi characterized the early demand environment for Mounjaro as "unprecedented" and it's now clear that the drug is indeed a blockbuster. However, it wasn't the only contributor to LLY's upside results.Verzenio, a medication for the treatment of metastatic breast cancer, generated sales growth of 57% to $926.8 mln, while type 1 diabetes drug Jardiance posted growth of 45% to $668.3 mln. Plague Psoriasis treatment Taltz chipped in with sales of $704 mln, up 16% yr/yr.LLY's upwardly revised FY23 guidance shows that the company is expecting sales momentum to build for its growth products (Verzenio, Jardiance, Taltz) and new products (Mounjaro). What stands out about its guidance is that the company didn't merely nudge its full-year outlook higher by roughly the same amount that it exceeded Q2 estimates by. Rather, it raised its forecast substantially, guiding for EPS of $9.20-$9.40 compared to its prior guidance of $8.65-$8.85, on revenue of $33.4-$33.9 bln compared to its previous guidance of $31.2-$31.7 bln.Investors may not have to wait long for the next multi-billion-dollar drug from LLY to hit the market.
- By the end of the year, the company is expecting regulatory action from the FDA regarding donanemab, its treatment for Alzheimer's disease. Last November, LLY reported that the drug met all primary and secondary endpoints in the Phase 3 trial and it reduced brain amyloid plaque levels vs. baseline by 65.2%.
- Also, since it works similarly to Biogen's (BIIB) Alzheimer's drug Leqembi, which received FDA approval on July 7, donanemab is expected to gain approval.
The main takeaway is that LLY's robust Q2 results and bullish outlook illustrate that it has become a top-flight growth stock in the healthcare sector. With Mounjaro only in the early innings of its growth curve, and with the anticipated approval of donanemab on the horizon, LLY's future is looking bright.
UPS slashes its FY23 sales outlook on higher-than-expected volume diversion in the U.S. (UPS)
Investors are not signing off on UPS's (UPS -1%) slashed FY23 revenue outlook today. The delivery giant projected FY23 sales of about $93.0 bln, a considerable drop from the $97.0 bln targeted last quarter, which was already lowered from $97.0-99.4 bln, underscoring continuously worsening macroeconomic conditions. The reduced outlook also stemmed from recent labor negotiations, negatively impacting volumes. Meanwhile, the higher costs associated with UPS's tentative agreement with the Teamsters last month weighed on adjusted operating margins, clipping its FY23 forecast to around 11.8% from 12.8%.
- UPS's Q2 numbers were also uninspiring. Although adjusted EPS of $2.54 topped estimates, revenue of $22.1 bln, a 10.9% drop yr/yr, fell short of analyst expectations. Revenue fell across UPS's segments, tumbling 6.9% in its largest U.S. Domestic segment, 13.0% in International, and 23.4% in Supply Chain Solutions.
- What happened? In U.S. Domestic, negotiations with the Teamsters generated quite a bit of noise, triggering more volume diversion than UPS anticipated; total average daily volume was down 9.9%, with the most significant declines branching from retail and high-tech industries. Overseas, economic conditions were slightly worse than UPS forecasted due to lower export growth, a theme discussed by CSX (CSX) last month, and industrial production. In Europe, inflation continued to weigh, while in Asia, the slow recovery witnessed last quarter stalled in Q2.
- On the plus side, UPS controlled costs to maintain decent margins in the quarter. Its U.S. Domestic team took out $889 mln of expenses yr/yr, the largest cost reduction in the company's history, through reduced labor hours and automation to maintain productivity. Internationally, UPS benefited from lower fuel expenses, managing the number of flights, and eliminating over 1,700 positions. As a result, adjusted consolidated operating margins contracted by just 120 bps yr/yr, fueling its minor earnings beat in the quarter.
- Looking ahead, management provided color to attach to its reduced FY23 outlook. Because of the higher-than-expected volume diversion in U.S. Domestic, UPS's volume ramp-up for 2H23 is starting from a lower base. The company is amid efforts to win back diverted volume, which should result in average daily volume in 2H23 will be down by a mid-single-digit percentage yr/yr. Internationally, yr/yr volumes for the back half of the year will resemble Q2, while Supply Chain Solutions revs will edge lower by high single digits.
Leading into UPS's Q2 report, there were several warning signs, from depressed intermodal volumes touched on by CSX and J.B. Hunt (JBHT) to a tepid FY24 (May) outlook issued by rival FedEx (FDX), projecting demand challenges to persist throughout the rest of 2023. Unfortunately for UPS, these discouraging trends weighed on its Q2 results and FY23 guidance. Although 2023 is shaping up to be a challenging year for the package delivery firm, there are still reasons to see the glass half-full, including Teamsters negotiations being a thing of the past and UPS's expected shareholder returns of around $5.4 bln in dividends and $3.0 bln in repurchases still on the table this year.
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