Market Snapshot
briefing.com
| Dow | 34313.01 | -151.19 | (-0.44%) | | Nasdaq | 13520.68 | +22.71 | (0.17%) | | SP 500 | 4393.32 | -7.65 | (-0.17%) | | 10-yr Note | +1/32 | 4.33 |
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| | NYSE | Adv 1209 | Dec 1629 | Vol 756 mln | | Nasdaq | Adv 1776 | Dec 2514 | Vol 4.2 bln |
Industry Watch
| Strong: Real Estate, Utilities, Communication Services, Consumer Discretionary |
| | Weak: Financials, Energy, Consumer Staples, Health Care |
Moving the Market
-- Relative strength from some mega cap stocks helping to limit losses
-- Eyeing price action in Treasuries, which is helping to keep the stock market in check
-- Weak bank stocks after S&P downgraded the credit ratings of multiple banks
-- Light volume due to seasonality
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Closing Summary
22-Aug-23 16:25 ET
Dow -12.22 at 34451.98, Nasdaq +8.28 at 13506.25, S&P -174.86 at 4226.11
[BRIEFING.COM] Stocks had a mixed showing in another lightly traded session. Market participants were eyeing the price action in Treasuries again, which was somewhat spastic and helped to keep the stock market in check.
In the early going, relative strength from the mega cap space had been driving Nasdaq gains and limiting losses elsewhere. The S&P 500 for its part had been trading above 4,400 at its high of the day before quickly slipping below that level. The S&P 500 failed to breach 4,400 on a few retests, which invited more selling interest in the afternoon trade.
The major indices ultimately settled the session near their worst levels of the day. The Dow Jones Industrial Average fell 0.5%, the S&P 500 fell 0.3%, and the Nasdaq rose 0.1%.
Weak bank stocks were a notable overhang for the broader market after S&P downgraded the credit ratings of multiple banks, noting concerns about funding risks from rising rates and weaker profitability. Additionally, retailer Macy's (M 12.66, -2.07, -14.1%) talked about weakening consumer credit conditions in its business, and that acknowledgment was another weight on the banks. The SPDR S&P Regional Banking ETF (KRE) fell 2.4% and the SPDR S&P Bank ETF (KBE) fell 2.0%.
Macy's was down sharply following its earnings report and Dick's Sporting Goods (DKS 111.53, -35.51, -24.2%) was another big loser after reporting earnings. Dick's came up well shy of consensus earnings estimates and attributed its disappointing profits and guidance to inventory shrink (i.e. theft). Lowe's (LOW 225.74, +8.15, +3.8%) went against the grain, though, and posted a nice gain after its quarterly report.
Homebuilders outperformed the broader market, boosted in part by an existing home sales report for July that continued to show a lean supply of homes for sale. The SPDR S&P Homebuilder ETF (XHB) rose 0.3%. The iShares U.S. Home Construction ETF (ITB) rose 0.8%.
The S&P 500 financials sector (-0.8%) saw the largest sector decline due to its weak bank components. The real estate sector (+0.3%), meanwhile, led the outperformers.
Treasury yields declined overnight before nudging higher after the cash open. Yields ultimately settled below their highs of the day. The 2-yr note yield note yield rose five basis points to 5.04% and the 10-yr note yield fell one basis point to 4.33%.
- Nasdaq Composite: +29.0% YTD
- S&P 500: +14.3% YTD
- S&P Midcap 400: +5.7% YTD
- Russell 2000: +5.2% YTD
- Dow Jones Industrial Average: +3.4% YTD
Today's economic data was limited to the existing home sales report for July. Existing home sales decreased 2.2% month-over-month in July to a seasonally adjusted annual rate of 4.07 million (Briefing.com consensus 4.15 million) from an unrevised 4.16 million in June. Sales were down 16.6% from the same period a year ago.
- The key takeaway from the report is that the inventory of existing homes for sale remains tight and affordability continues to be adversely impacted by rising prices and higher mortgage rates, all of which is also acting as moving deterrents for existing homeowners.
Tomorrow's economic calendar will feature:
- 7:00 ET: Weekly MBA Mortgage Index (prior -0.8%)
- 9:45 ET: Flash August S&P Global US Manufacturing PMI (prior 49.0) and flash S&P Global US Services PMI (prior 52.3)
- 10:00 ET: July New Home Sales (Briefing.com consensus 701,000; prior 697,000)
- 10:30 ET: Weekly crude oil inventories (prior -5.96 mln)
Treasuries settle mixed after choppy session
22-Aug-23 15:30 ET
Dow -140.78 at 34323.42, Nasdaq +13.36 at 13511.33, S&P -8.10 at 4392.87
[BRIEFING.COM] Stocks are holding steady in narrow ranges ahead of the close.
Treasuries settled mixed. The 2-yr note yield rose five basis points to 5.04% and the 10-yr note yield is down one basis point to 4.33%.
Tomorrow's economic calendar will feature:
- 7:00 ET: Weekly MBA Mortgage Index (prior -0.8%)
- 9:45 ET: Flash August S&P Global US Manufacturing PMI (prior 49.0) and flash S&P Global US Services PMI (prior 52.3)
- 10:00 ET: July New Home Sales (Briefing.com consensus 701,000; prior 697,000)
- 10:30 ET: Weekly crude oil inventories (prior -5.96 mln)
Energy complex settles lower
22-Aug-23 15:00 ET
Dow -151.19 at 34313.01, Nasdaq +22.71 at 13520.68, S&P -7.65 at 4393.32
[BRIEFING.COM] Things are little changed at the index level over the last half hour.
Energy complex futures settled lower. WTI crude oil futures fell 0.6% to $79.64/bbl and natural gas futures fell 2.7% to $2.56/mmbtu.
On a related note, the S&P 500 energy sector (-0.6%) trades near the bottom of the pack alongside financials (-0.8%).
Hasbro bucks broader market trend amid BofA Street-high tgt
22-Aug-23 14:25 ET
Dow -174.73 at 34289.47, Nasdaq +11.04 at 13509.01, S&P -11.57 at 4389.40
[BRIEFING.COM] The S&P 500 (-0.26%) is firmly in second place on Tuesday afternoon, down now about 12 points.
S&P 500 constituents Best Buy (BBY 74.09, -4.79, -6.07%), Charles Schwab (SCHW 56.38, -3.02, -5.08%), and Ulta Beauty (ULTA 429.47, -18.44, -4.12%) dot the bottom of the index. BBY reports earnings in a calendar week, SCHW announced a debt offering this morning, while ULTA is going to report on Thursday evening.
Meanwhile, games and entertainment company Hasbro (HAS 67.70, +4.45, +7.04%) is atop the S&P after BofA Securities earlier raised their tgt on the stock to a Street-high $90.
Gold modestly higher again
22-Aug-23 14:00 ET
Dow -184.80 at 34279.40, Nasdaq -0.91 at 13497.06, S&P -13.65 at 4387.32
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-0.01%) have moved back into the red, but only just.
Gold futures settled $3 higher (+0.2%) to $1,926.00/oz with a modest move higher in dollar offset by losses in treasury yields.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $103.54.
Page One
Last Updated: 22-Aug-23 09:00 ET | Archive
Mega caps put some bounce in market's step
The equity futures market has a bounce in its step this morning, largely because it rediscovered that bounce in yesterday's trading, rallying back from morning lows to close the session near its best levels of the day.
That was the second straight session that it has overcome early selling pressure and it was helped along by renewed buying interest in the mega-cap stocks and long-term rates hitting some resistance. Both of those factors remain at work this morning.
Currently, the S&P 500 futures are up 20 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 103 points and are trading 0.7% above fair value, and the Dow Jones Industrial Average futures are up 53 points and are trading 0.1% above fair value.
Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Amazon.com (AMZN), NVIDIA (NVDA), Tesla (TSLA), and Meta Platforms (META) are all up at least 0.4%. The 10-yr note yield is down one basis points to 4.33%.
Market participants are taking their cue from these moves within the context of a market that has been in a consolidation mode this month as mega-cap stocks have been under selling pressure and long-term rates have been rising.
Unlike more recent sessions, the equity market is poised to start today's trading on a higher note.
There will be some laggards in the opening mix. There always are. Dick's Sporting Goods (DKS) will be among the biggest laggards. It is down 20% after coming up well shy of Q2 EPS estimates and issuing disappointing full-year guidance. Dick's highlighted inventory shrink (i.e., theft) for its earnings disappointment.
Fellow retailers Lowe's (LOW) and Macy's (M) are moving in opposite directions after their earnings results. LOW is up 2.5% and M is down 8.3%.
The mixed response there, however, isn't doing much to alter the tone of the broader market, which is clearly operating under the sway of the mega-cap names and interest rate moves.
There will be an economic release at 10:00 a.m. ET that could hold some sway as a market driver. That will be the Existing Home Sales Report for July (Briefing.com consensus 4.15 million; prior 4.16 million). It is the only release of note on today's economic calendar.
There will be some interest in the interplay between rising mortgage rates, low supply, and median selling prices. We suspect the market is primed to hear more of the same, however, from this report, which is to say that the supply of existing homes for sale is tight, and overall sales are sluggish, as homeowners are "sheltering in place" because they don't want to trade out of a low-rate mortgage for a higher-rate mortgage.
It is an understandable stance, particularly if they are not forced to relocate because of a change in jobs.
Investors, though, are likely anxious to see a change in the underlying stock market trend, which has been predominately lower this month. The S&P 500 began the month just shy of 4,600 and it comes into today trading a whisker shy of 4,400.
-- Patrick J. O'Hare, Briefing.com
Coty's JunQ earnings come up short; price hikes to continue into FY24 to offset inflation (COTY)
Coty (COTY -2%) continues to slide following a slight Q4 (Jun) earnings miss and a modest FY24 EPS outlook. Shares of the cosmetic manufacturer have slipped over 15% since mid-July highs, consistent with the broader retail sector and its peer group, with the notable exception of e.l.f. Beauty (ELF), whose lower-priced products have propelled shares to recent 52-week highs.
- Adjusted EPS of $0.01 swung from $(0.01) in the year-ago period, but less than the $0.06 and $0.22 delivered in Q3 (Mar) and Q2 (Dec), respectively. Coty's continual price hikes helped keep its business operating profitability, with adjusted gross margins improving by 70 bps yr/yr to 62.8% despite elevated input costs.
- Coty mentioned that its pricing actions will continue in FY24, targeting a mid-single-digit hike across much of its lineup in Q1 (Sep). Management stated that inflation is here to stay next year, putting its brand loyalty to the test.
- After two years of price increases, the company remained confident that it had gained experience raising prices without triggering meaningful blowback, combining the hikes with value.
- Top line growth of 15.7% yr/yr to $1.35 tracked toward the high end of Coty's previous $1.20-1.40 bln forecast and returned to double-digit gains, a familiar sight to investors from 2021 and 2022. Positive momentum across both Coty's Prestige and Consumer Beauty segments carried into JunQ, with like-for-like (LFL) revenue growth reaching 21% and 10% yr/yr, respectively.
- Coty commented that within Prestige, the fragrance category continued to demonstrate resilience to macroeconomic pressures, while Consumer Beauty benefited from healthy demand across many of its core brands, including CoverGirl.
- Each geography also saw healthy LFL growth in the quarter, with the Americas, EMEA, and Asia Pacific jumping by at least +10%.
- Looking ahead, Coty's FY24 adjusted EPS guidance missed analyst expectations by a narrow margin, projecting $0.44-0.47. However, its outlook translated to a solid 56.9% increase yr/yr at the midpoint, underscoring Coty's confidence in offsetting sticky cost inflation with price hikes.
There may not have been any alarm bells, but Coty's JunQ performance was relatively modest, leading to today's sluggish price action. The beauty category has cooled in recent quarters but remains relatively inelastic, underpinned by ELF's impressive performance lately and still-healthy figures from Coty in JunQ. For the long term, Coty remains focused on targeting the younger generations, notably Gen X, who management remarked are the most loyal. The company is also entering the Brazilian market, a region estimated as a $4.0 bln opportunity.
Fabrinet looking fabulous today on JunQ earnings; surging AI unit offsetting weak telecom sales (FN)
Fabrinet (FN +27%) is looking pretty fabulous today after reporting Q4 (Jun) results last night. This Thailand-based provider of optical and electronic manufacturing services to OEMs beat analyst expectations by a good amount and the mid-point of its Q1 (Sep) guidance was better than expected. We also think the fact that its AI business performed well is helping the stock today as well.
- We like to keep an eye on EMS providers like Fabrinet because their results provide a window into the tech/electronics production space. Fabrinet focuses on optical components, automotive components, medical devices, industrial lasers and sensors. FN announced today that its four largest customers in FY23 were Cisco (CSCO 16% of revs), Lumentum (LITE 15%), NVIDIA (NVDA 13%) and Infinera (INFN 12%).
- FY23 was not an easy year for Fabrinet. The company noted that it dealt with supply headwinds in the first half of the fiscal year and that was followed by inventory adjustments in the second half of the fiscal year.
- Breaking Q4 down by segment, optical communications (OC 77% of revs) is by far its larger segment. Revenue rose 8% yr/yr but was flat sequentially at $502.1 mln. Within OC, telecom revenue fell 17% yr/yr and 19% sequentially to $309.6 mln. The decrease was primarily due to inventory digestion at its customers and their customers. However, the decline in telecom revenue was offset by record revenue growth in datacom, which grew 107% yr/yr and 57% sequentially to $192.5 mln. The biggest contributor to datacom growth was an 800 gig program for AI applications.
- Looking ahead, FN expects the near-term telecom inventory correction to persist in Q1. However, FN is also confident that the very strong datacom performance in Q4 will continue to largely offset these inventory-related headwinds in Q1. In fact, Fabrinet said it was very optimistic about its overall market position, including the potential for continued growth in AI-related programs.
- In its non-OC business, which is much smaller (23% of revs), revenue rose 25% yr/yr but fell 5% sequentially to $153.8 mln. Automotive is the largest subsegment within its non-OC area. Auto revenue rose 66% yr/yr to $92.9 mln, reflecting improved component availability. Industrial laser revenue was $28 mln, down 10% from Q3. Other non-OC revs were $32.9 mln, up 10% yr/yr.
So why is the stock up so much? The headline numbers were good. In particular, we think investors are happy with the upside guidance at the mid-points. After guiding lower last quarter, that was a welcome change. However, we think the record AI revenue may be the main reason why the stock is surging. It seems to have gotten people's attention on a day with few others companies were reporting earnings. Recall last quarter, NVDA reported a monster beat-and-raise, fueled by AI. Fabrinet seems to be catching some of that AI magic and it helps that NVDA is a sizeable customer for FN. Finally, NVDA is reporting tomorrow, so keep an eye on FN as a possible secondary play.
Dick's Sporting Goods misses EPS estimates considerably in JulQ from higher inventory shrink (DKS)
For the first time since the onset of COVID-related restrictions in 2020, Dick's Sporting Goods (DKS -24%) fell considerably short of bottom-line estimates in Q2 (Jul), a striking reversal from the double-digit beat last quarter. The sporting goods retailer also missed analysts' sales targets and lowered its FY24 (Jan) EPS forecast by roughly 11% at the midpoint. As a silver lining, DKS did keep its FY24 same-store sales growth estimate unchanged at flat to +2%.
Coinciding with the downbeat JulQ report was DKS's new business optimization strategy, eliminating customer support positions and other roles, totaling around 1% of its workforce. DKS did not forecast a material cost savings benefit from these actions, noting that talent investments would primarily offset the initiative.
What happened in JulQ?
- CEO Lauren Hobart chalked up adjusted EPS tumbling 23% yr/yr to $2.82 to elevated inventory shrink (i.e., lost inventory from theft, administrative error, or vendor fraud), a development Ms. Hobart noted is affecting many retailers.
- Shrink has been a topic discussed by some big names lately. For instance, Walmart (WMT) mentioned last week that shrink has increased a bit this year on top of a minor jump last year. Target (TGT) stated around the same time that it experienced over a point of cumulative profit pressure from higher shrink since 2019. Home Depot's (HD) 8 bp gross margin decline yr/yr was primarily from shrink.
- At the same time, discretionary spending is depressed, leading to tepid sales growth of just 3.6% to $3.22 bln. Several big-box retailers touched on big-ticket items remaining a weak point recently. DKS sells products across many price points, but sporting goods and camping gear can get pricey, hovering in "big-ticket" territory, especially those that can be replaced less often or deferred.
- As a result, DKS slashed its FY24 outlook, projecting adjusted earnings of $11.50-12.30, down from $12.90-13.80.
Although not offering much relief today, there was good news from the quarter. DKS still saw a 2.8% increase in transactions and continued to grab market share. The company's reformatted store strategy is moving along nicely, opening seven new House of Sport locations containing golf bays, multi-sport cages, rock walls, etc., to improve the in-store experience. DKS anticipates around 75-100 House of Sport sites to open by 2027. Sales also accelerated during July, a bullish sign ahead of the critical back-to-school season during Q3 (Oct).
With shares of DKS erasing all of their gains on the year, returning to late December 2022 levels, it is hard to find much to be optimistic about. The near-term demand landscape is not shaping up to be very favorable, especially with DKS competing against e-commerce companies that can rival its prices without the hassle of in-store returns. This is a major component of why the company is turning to elevate its customers' in-store experience, which we think is the right move, particularly since DKS sells products conducive to trial before purchase. Still, without a meaningful catalyst, DKS may remain under selling pressure for at least the next few months.
Lowe's reaffirm of FY24 guidance provides shares with some repair work (LOW)
Amid a sluggish spending climate for DIY projects, home improvement retailer Lowe's (LOW) still managed to edge past Q2 EPS estimates, displaying its solid operational performance. The company, which hasn't missed earnings expectations since 1Q20, leaned on cost containment measures and share buybacks to drive the earnings upside as revenue declined by more than 9% -- its steepest drop in over five years. Most importantly, though, LOW reaffirmed its FY24 revenue, comparable sales, and EPS guidance, signaling that demand has stabilized and isn't projected to take a turn for the worse.
- Expectations were muted heading into LOW's earnings report, as reflected in the stock's 8% dip since the end of July. Concerns that a slowdown in consumer discretionary spending would weigh on the company's results were amplified after rival Home Depot (HD) issued its Q2 earnings report last week.
- Although HD posted a top and bottom-line beat, the company noted that the DIY business was soft again as sales for big-ticket items like appliances and grills remained slow.
- As anticipated, weakness in LOW's DIY business (about 75% of total sales) did present a stiff headwind in Q2 with falling lumber prices adding to the pressures. However, the 1.6% comparable sales decline was better-than-feared due to stronger results in LOW's expanding Pro business. For the sake of comparison, HD's comps fell by 2.0% in Q2.
- On the expense side of the equation, LOW continues to manage the business in a cautious fashion, which is a key factor behind its earnings outperformance. In Q2, Selling, General, and Administrative costs decreased by about 8% yr/yr to $4.09 bln.
- Also helping the cause is that LOW repurchased approximately 10.1 mln shares during the quarter, providing EPS with another boost. The end result is that EPS declined by only 2% yr/yr, even as the company suffered its worst yr/yr decline in sales in many years.
The main takeaway is that Q2 was another challenging quarter for LOW as its heavier exposure to the DIY market predictably weighed on its top line. LOW's results were better-than-feared, though, and market participants are breathing a sigh of relief after the company followed in HD's footsteps and reaffirmed its FY24 outlook. After a rough start to August, the results and guidance are good enough to provide a relief rally today.
Goldman Sachs looks to trim another underperforming business, which could provide EPS boost (GS)
Coming off one of its most difficult quarters in recent history, in which it missed Q2 earnings expectations and experienced a 20% plunge in investment banking revenue, Goldman Sachs (GS) is looking for shake-up. According to Financial Times, the financial stalwart is considering a sale of its relatively small investment advisory business called Personal Financial Management.
- The potential divestiture marks the next step in GS's strategy to cull underperforming assets that have been weighing it down. For instance, in early July, GS unloaded $1.0 bln in personal loans from its consumer-oriented Marcus unit, following the sale of other Marcus loans in Q1, which generated a loss of about $470 mln.
- Additionally, GS is seeking buyers for its online lending platform GreenSky, a Fintech company that it acquired in 2021 for more than $1.7 bln. As consumer spending has slowed amid rising interest rates and high inflation, that business has taken a hit, causing GS to take a $504 mln write-down last quarter.
- When GS purchased Personal Financial Management in 2019 -- at the time, the company was called United Capital Financial Partners -- its goal was to broaden and diversify its client base and its revenue streams.
- Although the $750 mln acquisition pales in comparison to Morgan Stanley's (MS) massive $13 bln purchase of E*Trade in 2020, the concept behind the idea was similar. However, unlike MS, which has generally benefitted from its diversification strategy, as illustrated by its top and bottom-line beat in Q2, GS's efforts have mostly gone unrewarded.
- As GS unwinds these non-core assets, its reliance on institutional and high net worth clients will escalate. Accordingly, the company's investment banking and trading operations will be asked to carry an even heavier load.
- While GS's higher exposure to these businesses worked against it over the past two years, the pendulum could swing quickly back in its favor if deal-making recovers heading into 2024.
It's also worth noting that the stock has dove lower by about 10% so far in August, depicting investors' sagging expectations and optimism in GS's near-term prospects. That weakness, combined with a potential rebound in the IPO and M&A markets and stronger earnings as it sheds these assets, could be the recipe for a turnaround in the stock.
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