Market Snapshot
briefing.com
| Dow | 34215.01 | -257.89 | (-0.75%) | | Nasdaq | 13547.85 | -173.56 | (-1.26%) | | SP 500 | 4397.06 | -38.95 | (-0.88%) | | 10-yr Note | -4/32 | 4.237 |
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| | NYSE | Adv 680 | Dec 2134 | Vol 1.0 bln | | Nasdaq | Adv 1237 | Dec 3095 | Vol 4.4 bln |
Industry Watch
| Strong: -- |
| | Weak: Consumer Discretionary, Information Technology, Communication Services, Industrials, Health Care |
Moving the Market
-- Weakness in mega cap stocks
-- Disappointing action after NVDA's report acting as its own downside catalyst
-- Weak semiconductor stocks weighing down the market after falling prone to a sell-the-news reaction
-- Treasury yields settled slightly higher, keeping pressure on stocks
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Closing Summary
24-Aug-23 16:25 ET
Dow -373.56 at 34099.34, Nasdaq -257.06 at 13464.35, S&P -59.70 at 4376.31
[BRIEFING.COM] The major indices closed with sizable losses on the heels of NVIDIA's (NVDA 471.74, +0.58, +0.1%) blowout earnings report that was replete with much better than expected Q3 guidance and a new $25 billion share buyback plan. Things looked different at the open, though, with many stocks building on yesterday's gains.
Mega cap stocks rolled over quickly, however, and never regained their opening momentum, which weighed heavily on the broader market. Ultimately, the major indices closed near their lows of the day, which left the S&P 500 below 4,400.
The disappointing price action after NVIDIA's report likely caught many participants by surprise and became its own downside catalyst, which invited increased selling interest. The Vanguard Mega Cap Growth ETF (MGK), which had been up as much as 0.9% at its high, registered a 2.0% loss today. The Invesco S&P 500 Equal Weight ETF (RSP), which had been up as much as 0.6% earlier, closed with a 1.0% loss.
Weak semiconductor stocks were another overhang for the broader market, falling prone to a sell-the-news reaction. The PHLX Semiconductor Index sank 3.4%. Even NVDA, which had been up as much 6.6% today, closed near its low of the day with a measly 0.1% gain.
Other notable laggards included Dow component Boeing (BA 217.31, -11.27, -4.9%), which said a new flaw found in the 737 MAX will slow deliveries in the near term, T-Mobile (TMUS 133.32, -3.01, -2.2%), which said it is going to cut approximately 7% of its staff, and Dollar Tree Stores (DLTR 123.88, -18.34, -12.9%), which disappointed with its Q3 outlook.
All 11 S&P 500 sectors closed in the red with losses ranging from 0.2% (financials) to 2.2% (information technology).
Treasury yields settled slightly higher, keeping pressure on stocks, following another encouraging initial jobless claims report and ahead of Fed Chair Powell's speech at the Jackson Hole Symposium on Friday about the economic outlook. The 2-yr note yield rose eight basis points to 5.01% and the 10-yr note yield rose four basis points to 4.24%.
- Nasdaq Composite: +28.6% YTD
- S&P 500: +14.0% YTD
- S&P Midcap 400: +5.8% YTD
- Russell 2000: +4.8% YTD
- Dow Jones Industrial Average: +2.9% YTD
Reviewing today's economic data:
- Initial jobless claims decreased by 10,000 to 230,000 (Briefing.com consensus 240,000) for the week ending August 19 while continuing jobless claims decreased by 9,000 to 1.702 million for the week ending August 12.
- The key takeaway from the report is that the leading indicator of initial claims is still leading the market to believe that the labor market remains tight, which is something that won't escape the Fed's eye.
- Durable goods orders declined 5.2% month-over-month in July (Briefing.com consensus -4.0%). Excluding transportation, durable goods orders increased 0.5% month-over-month (Briefing.com consensus 0.2%).
- The key takeaway from the report, other than July's weakness was driven predominately by transportation, was that business spending transpired at a tepid pace, evidenced by the 0.1% increase in new orders for nondefense capital goods excluding aircraft.
- Weekly EIA Natural Gas Inventories showed a build of 18 bcf versus a build of 35 bcf last week.
Friday's economic calendar features:
- 10:00 ET: Final August University of Michigan Consumer Sentiment (Briefing.com consensus 71.2; prior 71.2)
- 10:05 ET: Fed Chairman Powell's Speech at the Jackson Hole Symposium
Treasuries settle lower after solid gains yesterday
24-Aug-23 15:25 ET
Dow -242.49 at 34230.41, Nasdaq -196.44 at 13524.97, S&P -41.94 at 4394.07
[BRIEFING.COM] Things are little changed at the index level over the last half hour.
Treasuries finished on a lower note after yesterday's gains. The 2-yr note yield rose eight basis points to 5.01% and the 10-yr note yield rose four basis points to 4.24%.
Friday's economic calendar features:
10:00 ET: Final August University of Michigan Consumer Sentiment (Briefing.com consensus 71.2; prior 71.2)
10:05 ET: Fed Chairman Powell's Speech at the Jackson Hole Symposium
Energy complex settles higher; energy sector outperforms
24-Aug-23 15:00 ET
Dow -257.89 at 34215.01, Nasdaq -173.56 at 13547.85, S&P -38.95 at 4397.06
[BRIEFING.COM] The major indices continue to troll along near their lows.
Energy complex futures settled higher. WTI crude oil futures rose 0.2% to $79.05/bbl and natural gas futures rose 1.7% to $2.64/mmbtu.
On a related note, the S&P 500 energy sector (-0.1%) sports one of the slimmest declines along with financials (-0.1%).
Advanced Micro, Enphase Energy among top S&P 500 laggards today
24-Aug-23 14:30 ET
Dow -250.45 at 34222.45, Nasdaq -147.10 at 13574.31, S&P -35.70 at 4400.31
[BRIEFING.COM] The S&P 500 (-0.80%) is in the middle of the standings, hovering just above session lows in recent action.
S&P 500 constituents Advanced Micro (AMD 101.46, -7.97, -7.28%), Enphase Energy (ENPH 122.91, -7.45, -5.71%), and Bath & Body Works (BBWI 34.30, -1.95, -5.38%) dot the bottom of the index. AMD has faded off the initial post-NVDA earnings pop, ENPH follows general weakness in solar stocks, while BBWI slumps off yesterday's modest post-earnings gains.
Meanwhile, Prudential (PRU 93.26, +1.83, +2.00%) is near the top of today's standings after a double upgrade to Strong Buy at Raymond James, news of a partnership via the company's retail wealth management business with LPL Financial (LPLA 233.09, +3.93, +1.71%).
Gold retreats after best day of August, and ahead of Powell
24-Aug-23 14:00 ET
Dow -244.88 at 34228.02, Nasdaq -156.69 at 13564.72, S&P -36.50 at 4399.51
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (-1.14%) is still the worst performing major average.
Gold futures settled $1 lower (-0.1%) to $1,947.10/oz ahead of tomorrow's Jackson Hole speech from Fed Chair Powell; the yellow metal comes off yesterday's best showing of the month wherein gold added more than +1%.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $103.88.
Page One
Last Updated: 24-Aug-23 09:02 ET | Archive
NVIDIA's market to lead -- or not
There is a divide in the equity futures market this morning that breaks along the lines of the new economy and the old economy so to speak. The Dow Jones Industrial Average futures are lower, pressured by some weakness in Boeing (BA), which said it has identified a new flaw in the 737 MAX that will slow deliveries in the near term, while the Nasdaq 100 futures are solidly positive, bolstered by yet another blowout earnings report and outlook from AI leader NVIDIA (NVDA).
Currently, the S&P 500 futures are up 16 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 133 points and are trading 0.9% above fair value, and the Dow Jones Industrial Average futures are down 69 points and are trading 0.2% below fair value.
The positive disposition of the S&P 500 futures is largely a function of the positive disposition in its technology components, which are riding NVIDIA's coattails. That would include the semiconductor issues and stocks like Microsoft (MSFT), Alphabet (GOOG), and Amazon.com (AMZN) that hold some extra AI appeal.
The question is, can NVIDIA take charge of the stock market or will it put a charge in its industry only while the rest of the market peters out in a continuing consolidation trade?
The Nasdaq 100 futures are off their highs of the morning and so is NVIDIA, which is up "only" 6.4% after being up more than 8.0%.
Today, then, will offer an important look at market sentiment. There was more than enough in NVIDIA's report and outlook to turn the low tide of selling interest seen in August. We say "low tide," because the losses seen this month have occurred on low volume, which suggests they have been driven more by a lack of buying interest (after a big run) than concerted selling efforts.
This morning's economic data may not offer much directional help. It was mixed relative to expectations.
Initial jobless claims decreased by 10,000 to 230,000 (Briefing.com consensus 240,000) for the week ending August 19 while continuing jobless claims decreased by 9,000 to 1.702 million for the week ending August 12.
The key takeaway from the report is that the leading indicator of initial claims is still leading the market to believe that the labor market remains tight, which is something that won't escape the Fed's eye.
Separately, durable goods orders declined 5.2% month-over-month in July (Briefing.com consensus -4.0%). Excluding transportation, durable goods orders increased 0.5% month-over-month (Briefing.com consensus 0.2%).
The key takeaway from the report, other than July's weakness was driven predominately by transportation, was that business spending transpired at a tepid pace, evidenced by the 0.1% increase in new orders for nondefense capital goods excluding aircraft.
The Treasury market had its own mixed response following the data. The 2-yr note yield, which is more sensitive to changes in the fed funds rate, jumped from 4.97% to 5.01%, up eight basis points from yesterday's settlement. The 10-yr note yield moved more deliberately, going from 4.22% to 4.23%, up three basis points from yesterday's settlement.
A drop in rates factored favorably into yesterday's positive showing for the stock market, so we will have to see how things shake out today, especially with participants cognizant that Fed Chair Powell is slated to give a speech about the economic outlook at the Jackson Hole Symposium on Friday at 10:05 a.m. ET.
Until then, this is NVIDIA's market to lead or not to lead.
-- Patrick J. O'Hare, Briefing.com
Splunk's beat-and-raise report eases concerns of further customer budget tightening (SPLK)
Cybersecurity and data analytics company (SPLK) may not have crushed Q2 and forward estimates to the stunning degree that NVIDIA (NVDA) did, but its impressive beat-and-raise quarterly report probably came as a much bigger surprise.
- Heading into the print, there was some concern that SPLK's customers may have tightened their spending budgets again -- a factor that caused the company to issue weak revenue guidance in Q4. While the company acknowledged that the current selling environment remains uncertain, it still easily beat EPS and revenue expectations and raised its FY24 revenue and total ARR guidance, providing the spark to drive shares to new 52-week highs.
- A key facet to SPLK's story and growth strategy is the company's ongoing transition to a cloud-based model. As such, Cloud ARR is a primary demand metric that market participants home in on to judge SPLK's progress.
- Due to the increased scrutiny over IT spending and the associated slowdown in the number of cloud migrations, Cloud ARR growth has slowed, which has weighed on the stock.
- Although that deceleration continued in Q2 as Cloud ARR increased by 27% yr/yr to $1.918 bln compared to growth of 32% last quarter, the drop-off wasn't as severe as some investors may have feared.
- Furthermore, the cloud portion of Q2 software bookings reached 64%, near the high end of SPLK's outlook of between 55-65%.
- Demand isn't in a full upswing at this point, but it appears to be stabilizing at the same time that SPLK is driving margins and cash flow generation higher. This is mainly due to SPLK's solid cost management, as reflected in a 3% reduction in non-GAAP operating expenses in Q2.
- As a result of the expense reductions and improved operating efficiencies, SPLK raised its FY24 operating margin guidance to 21.0-21.5%, up 300 bps from its prior forecast. The company also bumped its free cash flow outlook higher by $50 mln to $855-$875 mln.
The main takeaway is that SPLK may not be firing on all cylinders just yet, but the demand environment is stabilizing as the company positions itself to capitalize on emerging opportunities in AI. On that note, SPLK has launched Splunk AI, a collection of new and existing AI-powered offerings that provides faster detection, investigation, and responses to data security issues. Combined with the company's keen eye on costs, a brightening outlook for top-line growth should lead to stronger results down the road.
Dollar Tree losing some branches following Q2 report; margin pressure continues (DLTR)
Dollar Tree (DLTR -12%) is losing quite a few leaves today following its Q2 (Jul) report this morning. The dollar store chain beat on EPS and revenue. However, the EPS guidance for Q3 (Oct) was troubling as it came in well below analyst expectations and that was despite the mid-point of Q3 revenue guidance being above expectations. Whenever revs are good, but not EPS, you know there is some margin compression. Unfortunately, it seems the recent margin pressure DLTR has been facing will continue.
- Enterprise same-store comps in Q2 came in a very respectable +6.9% (Dollar Tree +7.8%; Family Dollar +5.8%), generally in-line with its mid-single digits prior guidance and it was nicely above Q1's +4.8% comp. DLTR guided to Q3 enterprise comps in the mid-single digits. It also increased its full year comp guidance to mid-single digits from prior guidance of low- to-mid-single-digits.
- As you can see, sales/comps look quite good. The problem is mostly related to margin compression. In Q2, operating margin fell to just 3.9% from 5.7% in Q1 and from 7.5% in the year ago period. DLTR was impacted by lower merchandise margin as the company lapped the margin benefit from last year's $1.25 rollout and from unfavorable sales mix, product cost inflation, and elevated shrink.
- DLTR says its industry continues to see a shift in consumer purchasing behaviors to consumables and away from discretionary items. DLTR believes there is a rotation to a pre-pandemic balance after years of elevated spending across discretionary categories. DLTR believes it's winning in consumables as consumers from all income levels are increasingly seeking value.
- DLTR says food categories are disproportionately driving sales momentum across the value retail landscape. Dollar Tree and Family Dollar are no exception. DLTR is seeing extremely high-volume growth across its frozen and center-store food categories. There is also growing evidence that consumers are seeking value through private brands. DLTR has been expanding and improving its private brand assortment and expects this will be a significant growth vehicle going forward.
Overall, this quarter was a letdown for investors. Sales/comps have kept pace, but the shift from discretionary items plus elevated shrink and an unfavorable sales mix are pressuring margins. Unfortunately, DLTR expects margin pressure to persist through the back half of the year and that was evident in its Q3 EPS guidance. It has been a mixed bag in the off-price/value segment of the retail spectrum. TJX and ROST did well, but BURL is down big on earnings today. We are about half way through this cycle, with upcoming reports from Big Lots (BIG Aug 29), Five Below (FIVE Aug 30), Ollie's Bargain Outlet (OLLI Aug 31) and Dollar General (DG Aug 31).
Burlington Stores sells off as its core lower-income consumer feels the weight of inflation (BURL)
Unlike peers, Ross Stores (ROST) and TJX (TJX), Burlington Stores (BURL -9%) is enduring a sell-the-news reaction to its Q2 (Jul) report today. The off-price apparel retailer did topple earnings expectations in the quarter while matching analysts' revenue forecasts. BURL's Q3 (Oct) guidance was also positive.
So why are investors selling the news today? BURL's FY24 (Jan) guidance was narrowed, clipping the high end of its projections. BURL now expects EPS of $5.60-5.90, changed from $5.50-6.00, revenue growth of +11-12%, 2 pts below its prior +11-14% prediction, and same-store sales growth of +3-4%, 1 pt down from +3-5%.
- What happened? Like Foot Locker (FL), BURL's core low-income shoppers remained under heavy economic pressure. Increases in the cost of living have the most negative impact on lower-income households. With inflationary pressures still edging higher, even if by less than last year, these customers constantly have to reprioritize their discretionary spending habits.
- As a result, comps expanded by just +4% in Q2, representing a 3% comp versus 2019 and similar to BURL's Q1 trend. The company conceded that it was disappointed by this performance. One of its primary focuses has been going after trade-down shoppers, anticipating that the challenging economic environment would spur more affluent income groups to begin frequenting its stores. Unfortunately for BURL, it has not seen as much trade-down activity as it would have liked, pointing to a still-strong overall economy, with unemployment staying low.
- That has not stopped management from pursuing higher incomes. Part of BURL's strategy is to increase its mix of recognizable brands and offer value across several price points within this assortment. Given the favorable supply environment, BURL has made progress in this effort. However, thus far, it has not seen a material benefit.
Despite the rough patches, there were silver linings from Q2 worth mentioning. BURL expanded its gross margins 280 bps yr/yr to 41.7%, driven by a 150 bp improvement in merchandise margins and a 130 bp decline in freight expense, a dynamic resembling ROST's margin performance. The jump in merchandise margins was fueled by higher markups and fewer markdowns, reflecting a robust off-price buying environment seen by BURL's peers.
Bottom line, although BURL's Q2 report was disappointing, especially after ROST and TJX delivered uplifting JulQ results, it does not mean that off-price retail will start experiencing considerable headwinds. However, it does raise a few alarms for retailers more dependent on lower-income shoppers. Dollar Tree (DLTR), which is amid a sell-off on underwhelming JulQ results today, Big Lots (BIG), which reports earnings on August 29, Five Below (FIVE) on August 30, and Ollie's Bargain Outlet (OLLI) on August 31, come to mind. While ROST and TJX demonstrated that the trade-down effect is occurring, not all companies benefit equally, especially if they have built up a brand that struggles to detach itself from catering primarily to low-income households. Store revamps, which BURL is undergoing, might be the spark to entice higher-income shoppers to begin patronizing their stores.
Snowflake's Q2 results and outlook receive chilly reception as growth cools (SNOW)
While operating in an "unsettled demand environment", as described by CEO Frank Slootman, Snowflake (SNOW) delivered upside 2Q24 results and reaffirmed its FY24 product revenue guidance of $2.6 bln.
The data analytics platform operator has seen some of its largest enterprise customers pull back on spending this year, resulting in a sharp slowdown in its growth and, by extension, a stock that has been stuck in neutral. Coming off a rough Q1 report in which SNOW issued disappointing product revenue guidance for Q2, it's evident that demand has at least stabilized, although the meaningful upswing that market participants were hoping for didn't materialize, either.
- Product revenue grew by 37% yr/yr to $640.2 mln, comfortably beating SNOW's guidance of $620-$625 mln. A closely watched demand metric for SNOW, product revenue measures how much the company's customers are spending on its platform to store or analyze data. Recall that SNOW's business model is based on consumption, rather than on subscriptions, making it vulnerable to volatile swings on the top-line as customers adjust their spending plans.
- The fact that SNOW exceeded its product revenue expectations is a positive, but the company does tend to take a cautious approach with its guidance. What market participants are really focusing on is the growth rate, which continues to decelerate.
- Last quarter, product revenue increased by 50%, preceded by growth of 54% in 4Q23 and 67% in 3Q23.
- Although SNOW's Q3 product revenue guidance of $670-$675 mln largely met expectations, it does signal a further decline in growth to 28-29%.
- During the earnings call, CFO Michael Scarpelli acknowledged that the outlook assumes that its largest headwinds will continue to be a headwind to growth, creating more disappointment for investors.
- The remark doesn't necessarily come as a huge surprise, though, because fellow data analytics company Datadog (DDOG) warned last week that some of its larger cloud-native customers are securitizing their costs more. As a result, DDOG issued downside revenue guidance for Q3 and FY23.
It's not all bad news for SNOW.
- Thanks to the company's tight controls on workforce additions and its robust product gross margin of 77.9%, its profitability continues to improve. Non-GAAP operating margin came in at 8%, easily beating its forecast of 2%, and EPS improved significantly to $0.22 from $(0.70) in the year-earlier period.
- Looking ahead, SNOW is anticipating non-GAAP operating margin to slip to 4% in Q3, but the company has a track record of exceeding its guidance.
- Additionally, SNOW is bullish on its opportunities in AI due to the proliferation of data sharing and large language models (LLMs). As an example, SNOW forged a partnership with NVIDIA (NVDA) in June that enables businesses to create LLMs using SNOW's data center product.
The bottom line is that SNOW's Q2 results were better-than-feared, but its cautious outlook and commentary regarding the spending environment is a source of disappointment and provides enough of an excuse to sell a pricey stock with a P/S north of 20x.
Autodesk constructing some nice gains on beat-and-raise (ADSK)
Autodesk (ADSK +3%) is constructing some nice gains today after reporting a solid Q2 (Jul) EPS beat last night with slight revenue upside. ADSK also provided upside EPS guidance for Q3 (Oct). As a provider of 3D computer-aided design (CAD) software primarily for architects and civil engineers, we are always nervous about how rising rates might affect the construction markets. However, the beat-and-raise was comforting to see.
- ADSK says that overall market conditions in Q2 remained similar to the last few quarters. Despite a tough macro backdrop that continues to drag on new subscriber adds, its financial performance in Q2 was strong. ADSK noted on its Q1 call that it had a strong cohort of EBAs (Enterprise Business Agreement) renewing in the second half of the year that last renewed three years ago at the start of the pandemic.
- These clients have since shown strong adoption and usage, which makes them likely to renew. The company said that some of that strength came through in Q2, which was earlier than it had been expecting and which boosted billings, free cash flow, and subscription revenue.
- Billings are another key metric for ADSK. They decreased by 8% yr/yr to $1.095 bln, which is down from 4% growth in Q1. For context, ADSK is transitioning from upfront to annual billings for multiyear contracts, which will impact billings growth this year. That transition started on March 28, so this was the first full quarter with that headwind. So that makes the decrease a bit more understandable. This change also creates a significant headwind to FCF in FY24 and a smaller headwind in FY25.
- Looking ahead, ADSK says the momentum from Q2 and early expansion of some EBAs expected to renew later in the year reduce the likelihood of its more cautious forecast scenarios. FX will be a headwind to revenue growth and margins in FY24, but that should moderate in 2H.
- Something that stood out to us was ADSK noting that it saw some evidence of multi-year customers switching to annual contracts during Q2. It was not entirely unexpected and not big enough to be called a trend. However, ADSK is keeping an eye on it. All else equal, if customers switch to annual contracts, it would negatively impact total RPO growth rates.
Overall, this was a very good report for ADSK. This was its largest EPS beat of any quarter in the past five years and the upside EPS guidance was impressive as well. We think this also bodes well for the construction market generally. The comments about multi-year customers switching to annual contracts was a bit of a concern but we think that is more about its clients just being prudent. Plus ADSK enjoys high renewal rates, so likely a non-issue. Finally, the stock has been stuck in a long term sideways trading pattern. It's unlikely this report will be enough to break above this range, but we think this report was an encouraging step.
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