Market Snapshot
briefing.com
| Dow | 34786.48 | +226.63 | (0.66%) | | Nasdaq | 13935.16 | +229.66 | (1.68%) | | SP 500 | 4490.45 | +57.14 | (1.29%) | | 10-yr Note | +29/32 | 4.12 |
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| | NYSE | Adv 2354 | Dec 521 | Vol 744 mln | | Nasdaq | Adv 3064 | Dec 1256 | Vol 4.7 bln |
Industry Watch
| Strong: Communication Services, Consumer Discretionary, Information Technology, Materials, Real Estate, Financials |
| | Weak: -- |
Moving the Market
-- Low volume on this last week of August
-- Continued strength in the mega caps
-- Digesting the JOLTS - Job Openings for July and Consumer Confidence for August
-- S&P 500 trading above its 50-day moving average (4,460)
-- Reacting to falling Treasury yields in response to the data
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Closing Summary
29-Aug-23 16:20 ET
Dow +292.69 at 34852.54, Nasdaq +238.63 at 13944.13, S&P +64.32 at 4497.63
[BRIEFING.COM] It was another strong day for stocks on light volume. A big drop in market rates provided the positive catalyst for stocks. The S&P 500 climbed its 50-day moving average (4,460) shortly after the open and ultimately settled just a whisker shy of the 4,500 level. All the major indices settled near their highs of the day.
Treasury yields dropped sharply following the release of the July JOLTS - Job Openings Report and August Consumer Confidence Index at 10:00 a.m. ET. Both of those reports were weaker than expected, which is a good thing in the market's eyes as it relates to Fed policy.
Job openings slumped to 8.827 million in July from a downwardly revised 9.165 million (from 9.824 million) in June. The Consumer Confidence Index, meanwhile, dropped to 106.1 in August (Briefing.com consensus 116.0) from a downwardly revised 114.0 (from 117.0) in July as receding optimism about employment conditions negatively affected consumers' view of the present situation and outlook.
The 2-yr note yield, at 5.03% just before the data, fell 15 basis points from yesterday's settlement to 4.91%. The 10-yr note yield, at 4.21% just before the data, fell nine basis points to 4.12%.
The drop in market rates coincided with a drop in rate hike expectations. The probability of another rate increase at the November FOMC meeting fell to 45.6% from 62.3% yesterday, according to the CME FedWatch Tool.
Mega caps and other growth stocks led the upside charge, reacting positively to the drop in market rates. The Vanguard Mega Cap Growth ETF (MGK) jumped 2.0% and the Russell 3000 Growth Index rose 1.9%.
All 11 S&P 500 sectors closed with a gain. The communication services (+2.5%), consumer discretionary (+2.4%), and information technology (+2.1%) sectors were propelled to first place on the leaderboard by their strong mega cap components.
A gain in Best Buy (BBY 76.93, +2.86, +3.9%) following its earnings results and outlook provided an additional boost to the consumer discretionary sector.
The utilities (+0.3%) and energy (+0.3%) sectors saw the slimmest gains.
In other news, Crypto-related stocks were a pocket of strength after a Federal appeals court ruled against the SEC in the Grayscale spot bitcoin ETF case, saying the SEC incorrectly rejected Grayscale's spot bitcoin ETF filing. Coinbase (COIN 84.70, +10.99, +14.9%) was a top winner from the space.
- Nasdaq Composite: +33.2% YTD
- S&P 500: +17.1% YTD
- Russell 2000: +8.6% YTD
- S&P Midcap 400: +7.6% YTD
- Dow Jones Industrial Average: +5.1% YTD
Reviewing today's economic data:
- June FHFA Housing Price Index 0.3%; prior 0.7%
- June S&P Case-Shiller Home Price Index, Yr/Yr -1.2% vs Briefing.com consensus of 0.9%; Prior -1.7%
- August Consumer Confidence 106.1 vs Briefing.com consensus of 116.0; Prior was revised to 114.0 from 117.0
- The key takeaway from the report is that receding optimism about employment conditions negatively affected consumers' view of the present situation and outlook.
- July JOLTS - Job Openings 8.827 mln vs Briefing.com consensus of ; Prior was revised to 9.165 mln from 9.842 mln
Wednesday's economic calendar will feature:
- 7:00 ET: Weekly MBA Mortgage Index (prior -4.2%)
- 8:15 ET: August ADP Employment Change (Briefing.com consensus 195,000; prior 324,000)
- 8:30 ET: Q2 GDP -- second estimate (Briefing.com consensus 2.4%; prior 2.4%), Q2 GDP Deflator -- second estimate (Briefing.com consensus 2.2%; prior 2.2%), July advance goods trade balance (prior -$87.8 bln), advance Retail Inventories (prior 0.3%), and advance Wholesale Inventories (prior -0.5%)
- 10:00 ET: July Pending Home Sales (Briefing.com consensus -1.3%; prior 0.3%)
- 10:30 ET: Weekly crude oil inventories (prior -6.14 mln)
Market moves sideways
29-Aug-23 15:35 ET
Dow +265.31 at 34825.16, Nasdaq +243.65 at 13949.15, S&P +62.55 at 4495.86
[BRIEFING.COM] The market is moving mostly sideways. The S&P 500 remains just below the 4,500 level.
Energy complex futures settled mixed. WTI crude oil futures rose 1.3% to $81.16/bbl and natural gas futures fell 0.1% to $2.66/mmbtu.
Wednesday's economic calendar will feature:
- 7:00 ET: Weekly MBA Mortgage Index (prior -4.2%)
- 8:15 ET: August ADP Employment Change (Briefing.com consensus 195,000; prior 324,000)
- 8:30 ET: Q2 GDP -- second estimate (Briefing.com consensus 2.4%; prior 2.4%), Q2 GDP Deflator -- second estimate (Briefing.com consensus 2.2%; prior 2.2%), July advance goods trade balance (prior -$87.8 bln), advance Retail Inventories (prior 0.3%), and advance Wholesale Inventories (prior -0.5%)
- 10:00 ET: July Pending Home Sales (Briefing.com consensus -1.3%; prior 0.3%)
- 10:30 ET: Weekly crude oil inventories (prior -6.14 mln)
All 11 S&P 500 sectors trade up
29-Aug-23 15:05 ET
Dow +226.63 at 34786.48, Nasdaq +229.66 at 13935.16, S&P +57.14 at 4490.45
[BRIEFING.COM] The S&P 500 continues to trade just below the 4,500 level.
All 11 S&P 500 sectors trade up now with gains ranging from 0.1% (utilities) to 2.3% (communication services).
The 2-yr note yield is down 15 basis points to 4.91% and the 10-yr note yield is down eight basis points to 4.12%.
Catalent higher after earnings, initiates; PCAR slips in S&P 500
29-Aug-23 14:30 ET
Dow +218.37 at 34778.35, Nasdaq +230.66 at 13935.79, S&P +55.23 at 4488.54
[BRIEFING.COM] The S&P 500 (+1.25%) is firmly in second place on Tuesday afternoon.
S&P 500 constituents Catalent (CTLT 48.07, +2.43, +5.32%), Insulet (PODD 190.18, 8.97, +4.95%), and United Rentals (URI 477.50, +20.40, +4.46%) dot the top of the standings. CTLT reported earnings and announced several initiatives reflecting its ongoing commitment to strong corporate governance and shareholder value creation including a cooperation agreement with PE firm Elliott Investment Management, while PODD along with diabetes peers TNDM +7.2% and DXCM +1.7% move higher, with URI gaining ground despite a dearth of corporate news
Meanwhile, PACCAR (PCAR 82.25, -2.93, -3.44%) is today's top laggard alongside peer CMI -2.0%.
Gold higher as dollar, yields pressured by econ data
29-Aug-23 14:00 ET
Dow +209.17 at 34769.15, Nasdaq +204.46 at 13909.59, S&P +51.52 at 4484.83
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+1.49%) remains atop the standings.
Gold futures settled $18.30 higher (+0.9%) to $1,965.10/oz as both the dollar and treasury yields are pressured by this morning's economic data.
Meanwhile, the U.S. Dollar Index is down about -0.5% to $103.56.
Page One
Last Updated: 29-Aug-23 08:56 ET | Archive
Some dog days of trading
The trading week got started on a positive note. The major indices all pushed higher on Monday, albeit on remarkably light volume at the NYSE and Nasdaq. Still, a gain is a gain for anyone who might have been looking to sell at higher prices.
This morning, it appears as if market participants aren't aiming to do much of anything.
The S&P 500 futures are down three points and are trading 0.1% below fair value, the Nasdaq 100 futures are down 21 points and are trading 0.1% below fair value; and the Dow Jones Industrial Average futures are down 30 points and are trading 0.1% below fair value.
These moves are coming on thin volume and today's moves in the cash session are also likely to come on thin volume (again). If market participants aren't checked out physically, then many remain checked out mentally, finding other diversions ahead of the Labor Day weekend.
There are news catalysts upon which to trade, however, for those choosing to trade.
- Best Buy (BBY) reported better than expected Q2 earnings and said it expects FY24 comp sales to decline 4.5-6.0% versus its prior guidance for a decline of 3.0-6.0%.
- Bloomberg reports that China's biggest banks are likely to cut rates on deposits and existing mortgages in a bid to stimulate growth.
- The Biden Administration named the first 10 drugs that are going to be subject to Medicare price negotiation.
- Citigroup upgraded AT&T (T) and Verizon (VZ) to Buy from Neutral, noting in part that the wireless business is showing signs of stabilizing, according to CNBC.
What's missing is the broad market trading catalyst. That might perhaps avail itself at 10:00 a.m. ET with the release of the July JOLTS - Job Openings Report and the August Consumer Confidence Index.
Those releases should be drivers of the Treasury market, which has been a driver of the stock market this month.
The 2-yr note yield is currently down four basis points to 5.02% and the 10-yr note yield is unchanged at 4.21% after skimming 4.17% in overnight action.
Of course, we should probably hold off using the word "action," which seems a bit of a stretch in these dog (trading) days of August.
-- Patrick J. O'Hare, Briefing.com
e.l.f. Beauty expands presence in affordable cosmetics industry with deal to acquire Naturium (ELF)
e.l.f. Beauty (ELF +10%) is adding to its cosmetics war chest with a cash-and-stock deal to acquire Naturium, a fast-growing skin care brand for $355 mln. Our first thought is that ELF has come a long way from its upstart status a few years ago. We think this deal signals a sense of confidence of how ELF has grown to be a key player in cosmetics. As evidenced by recent blowout quarters, ELF strikes us as being right for the times with consumers limiting spend. The majority of ELF's items retail for $10 or less.
- Let's dig into the deal, which is expected to double e.l.f. Beauty's presence in skin care to approximately 18% of retail sales. e.l.f. SKIN is one of the fastest growing skin care brands, and ELF sees Naturium's addition as a unique opportunity to significantly accelerate the potential it sees in skin care. Naturium was launched in 2019 by Los Angeles based brand accelerator, The Center, but has already grown quickly.
- Naturium seems to mirror's ELF's brand positioning by providing high performance skin care at an affordable price. Some of its best-selling products include The Glow Getter Multi-Oil Hydrating Body Wash, Vitamin C Complex Serum and Dew-Glow Moisturizer SPF 50. With an average selling price of approximately $18, Naturium products are currently available at Target, Amazon, naturium.com and select international retailers.
- ELF says the brand has seen exceptional growth, with sales growing at an +80% CAGR over the last two years, and approximately $90 mln of sales are expected this year. Naturium is also one of Target's fastest growing skin care brands.
- The deal seems pretty reasonably priced for an upstart brand at about 4x sales. We also like that the transaction is mostly cash, with only about $70 mln coming from ELF shares, so the dilution is not too bad. The small equity component is also a signal to investors that management thinks its shares are attractively valued.
Overall, Briefing.com like the deal quite a bit. Naturium sort of reminds of where ELF was a few years ago and seems to have struck the right balance between performance and price. There is a gap in the cosmetics industry between high-priced prestige beauty products and less innovative mass products. ELF's goal has always been to thread that needle by offering high-quality beauty products at an affordable price. ELF's recent results demonstrates its success. And we think Naturium threads that same needle. Also, both companies have high exposure to Target and online channels, so blending the operations should be pretty seamless. Finally, at 4x sales, the price seems pretty reasonable to add a fast growing brand.
Best Buy posts better results under tough conditions as company still expects 2024 recovery (BBY)
A pull-forward in demand for consumer electronics during the pandemic, a shift in spending trends towards travel and experiences, and tough macroeconomic conditions have beset Best Buy (BBY) over the past several quarters. Last night, though, the company reported better-than-expected Q2 results, including a sizable EPS beat, while raising the mid-point of its FY24 EPS guidance.
Expectations were quite low ahead of the report, as reflected by the stock's 10% dip in August prior to the earnings release, and BBY's results show that business is far from booming. However, the combination of beating those tempered expectations and a more encouraging outlook that suggests the worst is now behind the company is enough to spark a sharp rally higher.
- As widely anticipated, sales were soft once again in Q2, but the (6.2)% comp did exceed the midpoint of BBY's guidance of (8.0)%-(6.0)%. It also marked an improvement from last quarter's comp of (10.1)%, indicating that BBY's promotional activity boosted demand a bit.
- A more meaningful and lasting upswing in demand doesn't seem to be on the near-term horizon, though. The back-to-school shopping season appears to be off to a disappointing start with BBY guiding for Q3 comps to only be "slightly better than the negative 6.2%" reported in Q2. Accordingly, the company also lowered the midpoint of its FY24 comp guidance, forecasting comps of (6.0)%-(4.5)% compared to its prior guidance of (6.0)%-(3.0)%.
- On the positive side, growth in BBY's membership offerings, which include higher services margin rates, along with favorable product margin rates, drove domestic gross margin higher by 110 bps yr/yr to 23.1%. The company also kept a tight lid on costs with SG&A expenses essentially flat yr/yr at $1.9 bln.
- The healthier margins and cost containment efforts helped BBY to exceed EPS estimates. More importantly, though, the company raised its FY24 EPS guidance to $6.00-$6.40 from $5.70-$6.50, signaling that it will continue to focus on the bottom-line under these tough conditions.
- CEO Corie Barry stated that this year will likely be the low point in tech demand. However, she also commented that the consumer electronics market should see a stabilization in demand next year, with the potential for a return to growth due to an upgrade and replacement cycle for PCs, laptops, mobile phones, and other devices.
Overall, it was another rough quarter for BBY as EPS and revenue fell by 21% and 7%, respectively. Since expectations were very subdued for Q2, the focal point rested on BBY's guidance and commentary as market participants look for signs of a recovery. While that recovery may take another couple of quarters to play out, the anticipation for improved results next year is providing the stock with a catalyst today.
J.M. Smucker receives a minor push following mixed headline JulQ numbers (SJM)
After sinking to 52-week lows last week, J.M. Smucker (SJM) is trying to pick itself up today on decent Q1 (Jul) earnings results. The consumer-packaged-goods titan, famous for its Jif, Folgers, and Milk-Bone brands, exceeded bottom-line estimates by double-digits in Q1 and raised its FY24 (Jan) EPS forecast by 3%. Sales were a tad short of analyst expectations, falling 3.6% yr/yr to $1.81 bln. Still, SJM kept its FY24 revenue growth projection unchanged at +8.5-9.5%.
- Except for Pet Foods, sales growth in Q1 was robust across all of SJM's segments, reflecting the company's brand loyalty in coffee and consumer foods domestically and abroad. Retail Consumer Foods was the notable standout, benefiting enormously from lapping the Jif recall last year. Smucker's Uncrustables also played a meaningful role. Sales soared 49% yr/yr to $464 mln, assisting margin expansion of 520 bps to 22.8%.
- Regarding Uncrustables, management expressed confidence that Q1's performance was the beginning of a more sustained tailwind, projecting +20% growth yr/yr in FY24, translating to over 8% of the company's total annual sales.
- Retail Coffee, SJM's core segment, maintained a steady growth rate in Q1, improving sales by 5% yr/yr to $625 mln. Like Consumer Foods, Coffee's margins expanded nicely, jumping 280 bps to 27.2%.
- A key takeaway from Coffee was SJM's remarks that price gaps with competitors continued to narrow. At the same time, at-home consumption has remained sticky since the pandemic, with over 70% of all coffee drinking occurring at home.
- SJM's International and Away From Home segment tacked on 610 bps of margins yr/yr to 13.2%, assisted by a 17% jump in sales.
- However, keeping total sales growth negative was a 40% decline in Retail Pet Foods sales to $441 mln. However, the massive drop is misleading since it includes noncomparable sales from the year-ago period related to the divested pet food brands. Removing this, net sales increased 22%, translating to a 21% bump in overall net sales in the quarter.
- Looking ahead, although SJM kept its FY24 revenue forecast unchanged, it did hike its EPS outlook to $9.45-9.85 from $9.20-9.50.
Looking at the glass half empty, with shares hitting one-year lows last week, a 7% correction on the month, today's mildly positive reaction does not seem like much of a win. The consumer-packaged goods industry has been facing adversity lately, balancing relatively high prices to help offset inflationary costs and boost margins with consumer trade down to private labels.
SJM is no exception to this balancing act but manages it well, as evidenced by its solid Q1 performance. Given the sticky inflationary environment, growth concerns could still weigh on shares over the near term. However, although SJM's brands compete in easily replicable categories, the company's performance underscores healthy brand loyalty, which should continue to provide an economic moat over the longer term.
Jabil's margins and earnings growth prospects brighten with proposed sale of mobility business (JBL)
Manufacturing and product design company Jabil (JBL) is launching higher after announcing that it has entered into a preliminary agreement to sell its mobility business to China-based BYD Electronic Company for about $2.2 bln. The companies have agreed to complete due diligence on the deal before finalizing the terms of the transaction, but the idea of JBL divesting the mobility unit is clearly resonating with market participants.
- By divesting the mobility business, which makes components and encasements for devices -- including for Apple's (AAPL) iPhones and iPods -- JBL would lower its exposure to the sluggish consumer electronics market. At about $4.4 bln in annual sales (10-12% of total sales), the mobility unit is a significant piece of JBL's overall business.
- JBL would also lessen its dependence on Apple (AAPL), which accounts for nearly 20% of the company's revenue, and it would reduce its geopolitical risk as the divestiture would include the sale of its manufacturing facilities in China.
- What market participants are especially excited about, though, is that JBL intends to use the sale proceeds to further invest in its higher growth opportunities. This most notably includes a booming automotive business that posted 60% revenue growth last quarter. In particular, EV growth continues to be robust with JBL commenting during last quarter's earnings call that its growth is "limited only by the pace at which we can scale up production across multiple geographies with several OEMs."
- The automotive end market, combined with strength in other secular growth areas like renewable energy infrastructure and cloud computing, enabled JBL to deliver strong upside Q3 results in mid-June. However, the company continues to take a conservative approach with its outlook -- Q4 EPS and revenue guidance was merely in line with expectations -- due to lower demand in its consumer facing markets, such as smartphones. With an exit from the mobility business, JBL's outlook should turn more bullish.
- Lastly, JBL also plans to use a portion of the proceeds for share buybacks, which is always music to investors'' ears.
The main takeaway is that the proposed divestiture of JBL's mobility business looks attractive on several accounts, but the main reason being that it would likely enhance its margin and earnings growth profile as the focus increases on stronger end markets like EVs and cloud computing.
AppFolio hits 52-week highs on an upgrade to "Outperform" at William Blair today (APPF)
AppFolio (APPF +4%) hits 52-week highs today following an upgrade to "Outperform" from "Mkt Perform" at William Blair. Today's upgrade is the second in just one week, with Stephens placing an "Overweight" rating on APPF on August 21, up from its previous "Equal-Weight" rating.
Briefing.com notes that two back-to-back analyst upgrades underscore increasing bullishness toward APPF, a software company helping landlords and investment firms in the real estate business manage their properties, including screening potential tenants, processing payments, and providing insurance-related risk mitigation. As a software provider, APPF has been at the receiving end of the AI-related boom this year.
With elevated costs and property management firms looking to increase efficiency, APPF is amid a decent tailwind, countered by a few lingering headwinds.
- APPF's revenues are predominately from subscription fees, which vary by property type and scale with the size of its customers' businesses. At the end of Q2, APPF boasted over 19,100 customers, a 7% jump from the year-ago period. In Q2, its core value-added services revenue may have climbed a respectable 30% yr/yr, but this growth was more moderate than in the previous few quarters.
- Although catering to a relatively resilient rental housing market, APPF has been unable to avoid the negative impact of the current economic climate, which has seen spending soften, particularly in the software vertical. Management noted that the high payment adoption rate over the past several years is normalizing in 2023. As a result, APPF has undergone some restructuring, similar to many software-based tech firms lately, announcing plans to reduce its workforce by nearly 9% earlier this month.
- However, in an APPF survey of over 2,000 property managers, the company found that employees spend over a third of their time on repetitive tasks that AI could automate. This opportunity adds tremendous upside potential for APPF, which could significantly boost its subscription revenue over the next several quarters if its customers begin signing on to its newly unveiled AI product portfolio.
- AI may also unlock additional opportunities upmarket. APPF has been looking to expand its total addressable market by penetrating areas of the housing market bogged down by efficiency challenges, such as the affordable housing market. For instance, qualifying affordable housing residents requires a fair amount of reporting across many different systems, while affordable operators also have to meet rigid compliance standards. AI can solve a lot of the headaches associated with these tasks.
By operating within the tech and real estate sectors, APPF offers exposure to two vastly different fields. Still, after an ~80% run to start 2023, a lot of excitement surrounding APPF's long-term potential may already be priced in. Meanwhile, the real estate sector sits roughly flat on the year, underperforming most of its counterparts. Nevertheless, property management is a relatively under-penetrated industry with a long runway regarding transitioning toward a digital future. APPF is carving out a leadership position in this market, which, combined with the advantages AI brings in reducing busy work, offers compelling long-term upside.
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