Market Snapshot
briefing.com
| Dow | 35237.80 | -43.51 | (-0.12%) | | Nasdaq | 13745.45 | +100.21 | (0.73%) | | SP 500 | 4479.64 | +14.32 | (0.32%) | | 10-yr Note | -2/32 |
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| | NYSE | Adv 1148 | Dec 1694 | Vol 814 mln | | Nasdaq | Adv 1809 | Dec 2601 | Vol 4.2 bln |
Industry Watch
| Strong: Information Technology, Communication Services, Consumer Discretionary, Health Care |
| | Weak: Utilities, Energy, Real Estate, Consumer Staples |
Moving the Market
-- Treasury yields pulling back from session highs
-- Lack of participation consistent with late-summer activity
-- Ongoing consolidation efforts
-- Buy-the-dip interest in mega cap stocks offering some support to the broader market
| Closing Summary
14-Aug-23 16:25 ET
Dow +26.23 at 35307.54, Nasdaq +143.48 at 13788.72, S&P +25.67 at 4490.99
[BRIEFING.COM] The major indices had a somewhat mixed showing on below-average at volume at the NYSE. There wasn't a lot of conviction on either side of the tape, which is consistent with late-summer activity and consolidation efforts. Decliners had a less than 3-to-2 lead over advancers at both the NYSE and the Nasdaq.
Mega cap leadership had a disproportionate influence on index gains, leading to the outperformance of the S&P 500 and Nasdaq. The Vanguard Mega Cap Growth ETF (MGK) rose 1.2% and the market-cap weighted S&P 500 logged a 0.6% gain. The Invesco S&P 500 Equal Weight ETF (RSP), meanwhile, closed flat.
Six of the 11 S&P 500 sectors closed flat with the utilities (-0.8%) and real estate (-0.5%) sectors registering the largest declines. The information technology sector (+1.9%), meanwhile, closed at the top of the leaderboard. The sector was supported by a big jump in NVIDIA (NVDA 437.53, +28.98, +7.1%) after it was named a Top Pick at Morgan Stanley in front of its earnings report next week.
The materials sector (+0.2) closed near the middle of the pack despite nice gains in Steel Dynamics (STLD 107.65, +5.35, +5.2%) and Nucor (NUE 172.04, +5.52, +3.3%). Those moves follow news that Cleveland-Cliffs (CLF 15.98, +1.29, +8.8%) made a bid to acquire its steelmaking rival US Steel (X 31.08, +8.36, +36.8%).
Treasury yields settled higher, keeping some pressure on stocks. The 2-yr note yield rose eight basis points to 4.97% and the 10-yr note yield rose two basis points to 4.18%. The U.S. Dollar Index climbed 0.3% to 103.18.
- Nasdaq Composite: +31.7% YTD
- S&P 500: +16.9% YTD
- S&P Midcap 400: +9.7% YTD
- Russell 2000: +9.0% YTD
- Dow Jones Industrial Average: +6.5% YTD
Today's economic calendar includes:
- 8:30 a.m. ET: July Retail Sales (Briefing.com consensus 0.4%; prior 0.2%) and Retail Sales ex-auto (Briefing.com consensus 0.4%; prior 0.2%); July Import Prices (prior -0.2%), Import Prices ex-oil (prior -0.4%), Export Prices (prior -0.9%), and Export Prices ex-ag. (prior -0.9%); August Empire State Manufacturing (Briefing.com consensus 2.4; prior 1.1)
- 10:00 a.m. ET: June Business Inventories (Briefing.com consensus 0.1%; prior 0.2%); August NAHB Housing Market Index (Briefing.com consensus 56; prior 56)
- 4:00 p.m. ET: June Net Long-Term TIC Flows (prior $25.8 billion)
Treasuries settle with losses
14-Aug-23 15:25 ET
Dow -44.88 at 35236.43, Nasdaq +108.58 at 13753.82, S&P +16.34 at 4481.66
[BRIEFING.COM] Recent trading has the major indices moving mostly sideways.
The 2-yr note yield rose eight basis points to 4.97% and the 10-yr note yield rose two basis points to 4.18%. The U.S. Dollar Index climbed 0.3% to 103.18.
Today's economic calendar includes:
- 8:30 a.m. ET: July Retail Sales (Briefing.com consensus 0.4%; prior 0.2%) and Retail Sales ex-auto (Briefing.com consensus 0.4%; prior 0.2%); July Import Prices (prior -0.2%), Import Prices ex-oil (prior -0.4%), Export Prices (prior -0.9%), and Export Prices ex-ag. (prior -0.9%); August Empire State Manufacturing (Briefing.com consensus 2.4; prior 1.1)
- 10:00 a.m. ET: June Business Inventories (Briefing.com consensus 0.1%; prior 0.2%); August NAHB Housing Market Index (Briefing.com consensus 56; prior 56)
- 4:00 p.m. ET: June Net Long-Term TIC Flows (prior $25.8 billion)
Energy complex settles mixed
14-Aug-23 15:05 ET
Dow -43.51 at 35237.80, Nasdaq +100.21 at 13745.45, S&P +14.32 at 4479.64
[BRIEFING.COM] The major indices have settled into narrow ranges.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 0.8% to $82.52/bbl and natural gas futures rose 1.0% to $2.80/mmbtu.
The S&P 500 energy sector (-0.6%) trades near the bottom of the pack for the 11 sectors.
NVDA boost info tech sector
14-Aug-23 14:35 ET
Dow -36.53 at 35244.78, Nasdaq +90.05 at 13735.29, S&P +14.21 at 4479.53
[BRIEFING.COM] The S&P 500 is up 0.2% after drifting slightly lower in recent action.
NVIDIA (NVDA 433.82, +25.34, +6.2%) shares are jumping after it was named a Top Pick at Morgan Stanley ahead of its earnings report next week.
The big gain in NVDA is contributing to the outperformance of the S&P 500 information technology sector (+1.3%).
Also, the PHLX Semiconductor Index is up 2.2%.
Nasdaq leads; gold and copper futures settle lower
14-Aug-23 14:00 ET
Dow -34.52 at 35246.79, Nasdaq +93.04 at 13738.28, S&P +14.60 at 4479.92
[BRIEFING.COM] The Nasdaq (+0.7%) is the best performing major average.
Gold futures settled today's session $2.20 lower (-0.1%) at $1,944.40/oz. Copper futures settled 0.5% lower at $3.73/lb.
Meanwhile, the U.S. Dollar Index is up 0.2% to 103.07.
Stuck in consolidation (and vacation) mode
There isn't a strong signaling mechanism from the equity futures market this morning, but the signaling there is implies some continued softness.
Currently, the S&P 500 futures are down four points and are trading 0.1% below fair value, the Nasdaq 100 futures are down seven points and are trading fractionally below fair value, and the Dow Jones Industrial Average futures are down 22 points and are roughly in-line with fair value.
There hasn't been a lot of news flow to excite the trading masses. Instead, there has been a collection of individual items causing some stock-specific/industry-specific moves.
To provide an example of the relative dearth of market-moving news flow items, some ample attention has been paid this morning to the news that the cage match between Mark Zuckerberg and Elon Musk appears to be off.
Now, with that "important" news item out of the way, some other stories of interest include the following:
- U.S. Steel (X) receiving a proposal to be acquired by Cleveland-Cliffs (CLF) for total consideration of $35.00 per share; U.S. Steel said it will explore strategic alternatives to maximize shareholder value after receiving multiple unsolicited proposals
- Tesla (TSLA) is cutting prices in China, according to Bloomberg
- There was a suspension in bond trading for Chinese property developer Country Garden; and trading in Sino Ocean's one-year notes was also suspended
- Morgan Stanley named NVIDIA (NVDA) a Top Pick ahead of its earnings report, according to CNBC
There isn't any U.S. economic data of note today, yet that will change tomorrow with the release of the July Retail Sales Report. On a related note, the earnings calendar this week will feature reports from Dow components Home Depot (HD) and Walmart (WMT), and other retailers, including Target (TGT) and TJX Cos. (TJX).
There has been some added activity in the Treasury market, accented with a slant of selling. The 2-yr note yield is up five basis points to 4.94% and the 10-yr note yield is up one basis point to 4.18%.
By and large, the stock market remains stuck in a consolidation mode that is running parallel with a market that seems more attentive to vacation mode.
-- Patrick J. O'Hare, Briefing.com
Tesla encounters a speed bump today after reportedly implementing further price cuts in China (TSLA)
Tesla (TSLA -1%) hits a speed bump after reportedly slashing prices in China today. The company cut the cost of the Long Range and Performance Model Y by around $1,900 while extending an insurance subsidy for the base Model 3 through the end of September. The price cuts reflect stalling recovery efforts in the region.
It is not the first time Tesla has trimmed its pricing in China. Last month, Tesla reduced the prices of its Model S and X vehicles in the region by roughly $4,825, following its decision a month earlier to provide cash subsidies to particular Model 3 buyers. Meanwhile, throughout 2022, Tesla was lowering prices across the board, a move that worried investors as it reflected growing competitive risks in the country.
Speaking of the competition, Tesla's price cuts today follow in the footsteps of competing China-based electric vehicle (EV) manufacturers. Li Auto (LI) lowered its average selling price in Q2 to spur more robust delivery growth. Nio (NIO) reduced prices by over $4,000 despite actively trying to avoid a price war in June. XPeng (XPEV), which reports Q2 results on Friday, slashed prices of its base models earlier this year to better contend with a challenging demand environment.
The price war among EV makers in China does not bode well for Tesla -- or its rivals, for that matter -- which is already in hot water regarding the price cuts it announced across many other markets, including the U.S. and Europe, and their negative effect on margins.
- Last month, shares sunk by 10% on a disappointing Q2 report, headlined by GAAP gross margins tumbling over 680 bps yr/yr to 18.2%. The market was likely anticipating margin stabilization ahead of Tesla's Q2 results. However, even after a significant yr/yr contraction, CEO Elon Musk signaled continual margin pressure over the near term.
- Without Tesla breaking down its deliveries by geography, it is unclear how much the price cuts in China affected the company's record delivery figures in Q2. However, given that its China-based rivals, including XPEV and BYD, as well as other global OEMs, like Volkswagen Group, saw a spike in deliveries during Q2, the cuts likely provided a meaningful boost to Q2 deliveries for Tesla.
- If Mr. Musk's comments last quarter are any indication, stating that he would rather sacrifice margin for volume, price cuts will likely continue as long as global economic conditions remain relatively weak to continue fueling upbeat delivery reports. Adding further evidence, Mr. Musk also noted during the Q2 earnings call that the company adjusts course according to the public's mood.
As the price war remains active in China, Tesla will struggle to carve out a bottom regarding margins. It helps that commodity costs, including nickel, cobalt, and graphite, have declined across the board, translating to thousands of dollars of positive impact per vehicle. Nevertheless, Tesla shares could have trouble breaking above levels before Q2 earnings until prices, and thus margins, stabilize.
US Steel sharply higher on M&A bid but backs away; Cleveland-Cliffs has been active (X)
There was some pretty big M&A news in the steel space over the weekend with Cleveland-Cliffs (CLF +5%) having made a bid to acquire its steelmaking rival US Steel (X +28%). It was a cash-and-stock deal comprised of $17.50 in cash plus 1.023 shares of CLF for each share of US Steel. This implied a total consideration of $35 per share, which was a 43% premium to US Steel's Friday closing price.
- US Steel has rejected the offer because it says it wanted more time to review the value of CLF. Nearly half the proposal is comprised of CLF shares. As such, X wanted to sign an NDA (non-disclosure agreement) and dig into CLF's financials and do some due diligence to see if the deal made sense. According to X, CLF refused to sign the nearly completed NDA unless X agreed to the economic terms of the proposal in advance.
- US Steel did not entirely close the door on a deal with CLF. In fact, it invited CLF to participate in X's previously announced strategic review process. X previously disclosed it had commenced a formal review process, with the assistance of outside financial and legal advisors, to evaluate strategic alternatives after receiving multiple unsolicited proposals that ranged from the acquisition of certain production assets to consideration for the whole company.
- CLF has been quite active on the M&A front in recent years. In March 2020, CLF acquired AK Steel for $1.1 bln. Then, in December 2020, the company acquired ArcelorMittal USA for $1.4 bln. Luxembourg-based ArcelorMittal (MT) is a massive global steel company, but CLF bought its US operations. After these deals were completed, CLF became the largest flat-rolled steel producer in North America and the largest iron ore pellet producer in North America. CLF also now has very high exposure to automotive. It supplies 2.5x more steel to the automotive industry than the #2 and #3 players combined.
- A deal for US Steel would be quite significant. With a $6.4 bln market cap, it would be larger than the AK Steel and ArcelorMittal USA deals combined. Given its size, it would also be a transformative deal for CLF, which has a $7.5 bln market cap.
- It's important to provide some context here on the steel industry. There are generally two methods to make steel: there are the integrated producers (CLF, X), which basically make steel from raw materials (iron ore, coke) by melting it in a huge blast furnace. Mini-mills (CMC, NUE, STLD) make steel from melting scrap in electric arc furnaces. Mini-mills are generally more efficient because they can more easily start and stop based on demand whereas a blast furnace is pretty much always on. Also, mini-mills tend to use non-union labor. So what it looks like to us is that CLF is rolling up the IP side with these recent deals.
Overall, this will definitely be an interesting area to watch. We can understand why X would want to do its due diligence on CLF given the high equity component of the deal. Also, CLF shares have not performed well since early March. But it does sound like X is open to a deal, whether it be CLF or another suitor. That is helping to propel US Steel's shares this morning. We presume X would prefer more cash and less equity in a future proposal.
Monday.com registers a solid beat-and-raise in Q2 despite an unfavorable economic climate (MNDY)
Monday.com (MNDY +11%) is far from having a case of the Mondays after delivering a solid beat-and-raise in Q2. Notably, the work management platform registered upbeat Q2 results despite a soft-demand environment where IT departments are cutting back spending. For example, earlier this month, ZoomInfo (ZI) slashed its FY23 sales outlook on weak demand, underscored by an ongoing shift toward profitability over growth, mainly within the software vertical. ZI's bearish forecast, which coincided with the Fitch downgrade, sent shares of MNDY cascading by 12% as of Friday's close.
As a result, the market is expressing relief over MNDY's ability to circumvent relatively light demand conditions during Q2, sustaining much of the positive momentum from Q1.
- EPS climbed out of negative territory from the year-ago period to $0.41 per share, a testament to MNDY's quick pivot toward profitability. Recall last quarter MNDY's announcement of achieving non-GAAP operating profitability this year, two years earlier than initially predicted; the company remains on target to reach this milestone.
- Meanwhile, albeit decelerating from Q1, sales growth remained robust, jumping 42% yr/yr to $175.7 mln. MNDY's customers with over $50K in annualized recurring revenue (ARR) surged by 63% yr/yr after +75% in Q1.
- Net dollar retention (NDR), a measure of existing customer spending, stood at just over 110% in the quarter, down slightly from over 115% in Q1. Less enthusiastic, MNDY reiterated that it anticipates NDR to remain under some pressure throughout FY23 due to lingering macroeconomic challenges.
- Still, after the launch of mondayDB 1.0 earlier this year, with new iterations planned for the back half of FY23 and 2.0 and 3.0 coming in 2024 and 2025, respectively, we suspect MNDY's NDR to remain comfortably above 100% despite macroeconomic hurdles. Furthermore, MNDY's CRM product continues to exceed expectations, generating a healthy stream of customers.
- After the outperformance in Q2 and demand remaining primarily unchanged from last quarter, MNDY was confident in lifting its FY23 revenue guidance to $713-717 mln, up from $702-706 mln. Management still cautioned that it faces longer sales cycles and heightened deal scrutiny. However, on the whole, MNDY is seeing healthy new customer demand and stabilizing NDR.
Looking at MNDY's Q2 report half empty, plenty of metrics decelerated from last quarter, a potentially troubling sign of a stubbornly unfavorable macroeconomic climate. However, we think MNDY's positives outweighed the negatives in Q2, especially when considering the difficult economic situation. Work management and CRM platforms are best utilized by sales teams, which are trimmed or struggle to ink massive deals during a period of slowing growth. Therefore, MNDY's buoyant Q2 results showcase the necessity of its product suite even when spending is easing.
On a final note, MNDY's Q2 figures are an encouraging sign ahead of many of its competitors' JulQ reports, including Salesforce (CRM) on August 30, Asana (ASAN) on September 5, and Smartsheet (SMAR) on September 7.
IonQ takes a quantum leap forward today on raised FY23 bookings guidance and upbeat color (IONQ)
Shares of quantum computer developer IonQ (IONQ +13%) are making another quantum leap forward today despite missing Q2 earnings estimates as investors praise raised FY23 bookings guidance and bullish commentary. After today's big move, IonQ has seen its stock explode by over 400% on the year.
Although many analysts agree that quantum computing is still years away from widespread commercialization, the technology presents a major step forward from classical computing in solving complex problems across many fields, from medicine and physics to supply chains and financials. While classical computers cap the capacity of AI and ML, quantum computers remove these limits.
Where does IonQ fit into the quantum computing space? IonQ sells access to several quantum computers while it continues researching the technology. Access is gained through prominent cloud providers Amazon Web Services (AMZN), Microsoft Azure (MSFT), and Google Cloud (GOOG) as quantum-computing-as-a-service (QCaaS). IonQ remains in the early stages of commercial growth, incurring significant operating losses.
However, the tide seems to have turned for IonQ this year.
- A major turning point for IonQ came in June when it partnered with QuantumBasel, a Swiss-based firm, to bring two of its upcoming systems to Europe. The partnership was significant since, as its first on-premise hardware project in the region, it allowed IonQ to retain some capacity on each system, allowing it to serve other prospects throughout the continent.
- This partnership provided meaningful momentum to IonQ, paving the way for its 111.5% sales growth in Q2 to $5.5 mln, well above its $4.1-4.5 mln forecast. The commercial milestone also brought IonQ's YTD bookings to $32 mln, putting it in striking distance of its goal of $100 mln in cumulative bookings during the first three years of its commercialization efforts.
- As a result, IonQ increased its FY23 bookings guidance to $49-56 mln from $38-42 mln. The company also hiked its FY23 revenue target, projecting $18.9-19.3 mln from $18.8-19.2 mln. CEO Peter Chapman stated that the company is seeing increased demand for its systems and is optimistic that it will sell several over the next 18 months.
As a firm still amid the early stages of commercialization, a healthy degree of caution is warranted, especially following IonQ's massive run this year, putting it into priced-to-perfection territory. With AI fueling substantial gains across much of the tech sector this year, the AI frenzy also likely drove up IonQ's share price, building in the risk of a considerable pullback if the AI boom starts to cool.
Nevertheless, IonQ is operating in a field that could dwarf AI in terms of demand and its effect on the global economy, making it a name worth keeping on the radar.
Spectrum Brands Q3 report suggest it may be turning a corner, sparking rally to 52-week highs (SPB)
Spectrum Brands (SPB), a home essentials company with a portfolio of products in the home and garden and pet care markets, is jumping to new 52-week highs following a better-than-feared Q3 earnings report that highlighted the company's focus on margins and profitability. Importantly, SPB also maintained its FY23 revenue guidance of a mid-single digit yr/yr decline, easing fears that the slowdown in consumer spending and ongoing inventory reduction efforts at its retail partners caused the sluggish demand to worsen.
- On that note, sales still declined by 10% to $735.5 mln, missing analysts' estimates by a fairly large margin. Each of the companies three operating segments experienced net sales decreases, but the Home & Personal Care (HPC) business suffered the worst decline by far as revenue plunged by 53% to $276.6 mln. Kitchen appliances were a notable weak spot, especially in North America, as the deceleration in consumer spending pressured sales.
- The other two segments -- Home & Garden (H&G) and Global Pet Care (GPC) -- held up better with net sales down 12% and 18%, respectively. In addition to retailers continuing to drawdown their inventory levels, unfavorable weather led to lower replenishment orders in the pest control category for H&G. Additionally, demand for cleaning product continues to sag in the aftermath of the pandemic.
Clearly, business isn't booming for SPB, but there are a couple factors that market participants are homing in on.
- First, the company's adjusted EPS increased by 39% yr/yr as adjusted EBITDA margin expanded by 360 bps yr/yr, despite the decrease in net sales. The enhanced profitability is a function of pricing actions taken earlier in the year to combat inflation, and cost-cutting measures, including from last August's 17% workforce reduction.
- Perhaps more importantly, though, market participants are anticipating SPB's financial performance to improve further following the closing of its sale of the Hardware and Home Improvement segment. That deal, which was initially blocked by the Department of Justice, generated $4.3 bln in cash proceeds after it closed the sale to ASSA ABLOY on June 20. With those proceeds, SPB paid off its entire debt balance, strengthening its balance sheet as it pivots to becoming a faster growing, higher margin, pure play Global Pet Care and Home & Garden company.
The main takeaway is that while SPB is still facing some significant headwinds, which the company expects will persist into Q4, the outlook is gradually brightening for the more streamlined company.
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