Market Snapshot
briefing.com
| Dow | 34754.14 | -136.10 | (-0.39%) | | Nasdaq | 14061.60 | +42.29 | (0.30%) | | SP 500 | 4513.69 | -1.18 | (-0.03%) | | 10-yr Note | +2/32 | 4.09 |
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| | NYSE | Adv 1351 | Dec 1503 | Vol 1.2 bln | | Nasdaq | Adv 1914 | Dec 2406 | Vol 4.6 bln |
Industry Watch
| Strong: Consumer Discretionary, Information Technology, Communication Services |
| | Weak: Real Estate, Health Care, Financials, Utilities, Consumer Staples |
Moving the Market
-- Better than expected earnings and guidance from Salesforce (CRM)
-- Muted response from Treasuries to this morning's econ data
-- Mega caps rolling over and weighing down broader market
-- Many other stocks pulling back as the session progresses
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Closing Summary
31-Aug-23 16:25 ET
Dow -168.33 at 34721.91, Nasdaq +15.66 at 14034.97, S&P -7.21 at 4507.66
[BRIEFING.COM] The market's winning streak was broken today. The market initially moved higher before upside momentum slowly dissipated. The S&P 500 and Dow Jones Industrial Average both closed with a loss near their worst levels of the day while the Nasdaq eked out a slim gain. The muted price action was due to a lack of conviction on either side of the tape.
In general, big moves were reserved for individual stocks with catalysts. Retailers Dollar General (DG 138.50, -19.16, -12.2%) and Five Below (FIVE 171.96, -10.99, -6.0%) sank after reporting quarterly results that featured below-consensus guidance. CrowdStrike (CRWD 163.03, +13.85, +9.3%) and Dow component Salesforce (CRM 221.46, +6.42, +3.0%), meanwhile, registered sizable gains after their earnings reports.
Relative strength in mega cap stocks offered a measure of support to the broader market. The Vanguard Mega Cap Growth ETF (MGK) logged a 0.1% gain while the Invesco S&P 500 Equal Weight ETF (RSP) fell 0.4% and the market-cap weighted S&P 500 fell 0.2%.
Seven of the 11 S&P 500 sectors registered a loss with health care (-1.2%) and utilities (-1.0%) showing the steepest declines. The consumer discretionary sector (+0.5%) saw the biggest gain, bolstered by a nice move in Amazon.com (AMZN 138.01, +2.94, +2.2%).
Market participants were digesting some otherwise pleasing data that corroborated the understanding that the U.S. economy is not tracking currently at a hard landing pace.
Specifically, initial jobless claims - a leading indicator -- were just 228,000 for the week ending August 26, and personal spending increased at a healthy 0.8% clip in July. The PCE Price Index and core-PCE Price Index were both up 0.2%, and although that translated into an uptick in their year-over-year readings to 3.3% and 4.2%, respectively, the news was tolerated well because that was exactly what was expected ahead of the report.
Expectations for additional rate hikes before the end of the year were little changed after this morning's data. The probability of a 25 basis points rate hike in November is 45.4% now versus 48.9% before the data, according to the CME FedWatch Tool.
On a related note, Atlanta Fed President Bostic (2024 FOMC voter) said that he feels the Fed's monetary policy is appropriately restrictive, but that doesn't mean he is in favor of easing anytime soon.
Treasuries had a muted response to this morning's data, but drew some modest selling interest during the cash session. The 2-yr note yield fell two basis points to 4.86% and the 10-yr note yield fell three basis points to 4.09%.
- Nasdaq Composite: +34.1% YTD
- S&P 500: +17.4% YTD
- Russell 2000: +8.9% YTD
- S&P Midcap 400: +7.9% YTD
- Dow Jones Industrial Average: +4.8% YTD
Reviewing today's economic data:
- Weekly Initial Claims 175K vs Briefing.com consensus of 235K; Last Week was revised to 232K from 230K
- Weekly Continuing Claims 160K; Last Week was revised to 1.697 mln from 1.702 mln
- The key takeaway from the report is that initial claims -- a leading indicator -- continue to run at levels that are indicative of a tight labor market that goes hand-in-hand with an economy that is definitely not in a hard-landing pattern.
- July Personal Income 0.3% vs Briefing.com consensus of 0.3%; June was 0.3%
- July Personal Spending 0.8% vs Briefing.com consensus of 0.7%; June was revised to 0.6% from 0.5%
- July PCE Prices 0.2% vs Briefing.com consensus of 0.2%; June was 0.2%
- July PCE Prices - Core 0.2% vs Briefing.com consensus of 0.2%; June was 0.2%
- The key takeaway from the report would have to be the uptick in the year-over-year inflation readings. They weren't of the eye-popping variety; however, they should catch the Fed's eye as a basis not to cut rates anytime soon.
- August Chicago PMI 48.7 vs Briefing.com consensus of 45.0; July was 42.8
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: August Nonfarm Payrolls (Briefing.com consensus 175,000; prior 187,000), Nonfarm Private Payrolls (Briefing.com consensus 160,000; prior 172,000), Unemployment Rate (Briefing.com consensus 3.6%; prior 3.5%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.4%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)
- 9:45 ET: Final August S&P Global U.S. Manufacturing PMI (prior 47.0)
- 10:00 ET: July Construction Spending (Briefing.com consensus 0.6%; prior 0.5%) and August ISM Manufacturing Index (Briefing.com consensus 46.7%; prior 46.4%)
Treasuries settle with gains
31-Aug-23 15:30 ET
Dow -124.65 at 34765.59, Nasdaq +57.28 at 14076.59, S&P +1.73 at 4516.60
[BRIEFING.COM] Things are little changed at the index level over the last half hour.
Treasuries settled with gains. The 2-yr note yield fell two basis points to 4.86% and the 10-yr note yield fell three basis points to 4.09%.
Energy complex futures settled mixed. WTI crude oil futures rose 2.5% to $83.63/bbl and natural gas futures fell 1.0% to $2.77/mmbtu. On a related note, the S&P 500 energy sector (+0.1%) is among the top performers.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: August Nonfarm Payrolls (Briefing.com consensus 175,000; prior 187,000), Nonfarm Private Payrolls (Briefing.com consensus 160,000; prior 172,000), Unemployment Rate (Briefing.com consensus 3.6%; prior 3.5%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.4%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)
- 9:45 ET: Final August S&P Global U.S. Manufacturing PMI (prior 47.0)
- 10:00 ET: July Construction Spending (Briefing.com consensus 0.6%; prior 0.5%) and August ISM Manufacturing Index (Briefing.com consensus 46.7%; prior 46.4%)
Notable earnings after the close
31-Aug-23 15:00 ET
Dow -136.10 at 34754.14, Nasdaq +42.29 at 14061.60, S&P -1.18 at 4513.69
[BRIEFING.COM] The major indices have been in a steady decline recently.
After today's close, Dell (DELL), Broadcom (AVGO), VMWare (VWM), lululemon athletica (LULU), and MongoDB (MBD) headline the earnings reports.
Separately, the U.S. Dollar Index is up 0.4% to 103.60.
WDC higher amid rumors of NAND pricing increases, Elevance Health down with healthcare peers
31-Aug-23 14:25 ET
Dow -32.90 at 34857.34, Nasdaq +63.21 at 14082.52, S&P +8.89 at 4523.76
[BRIEFING.COM] The S&P 500 (+0.20%) is firmly in second place on Thursday afternoon, up about 9 points.
S&P 500 constituents Western Digital (WDC 45.20, +2.68, +6.30%), Arista Networks (ANET 195.06, +7.96, +4.25%), and Caesars Entertainment (CZR 55.37, +1.45, +2.69%) are among today's top gain getters. WDC moves higher after a Digitimes report suggested NAND firms were expecting to increase prices, ANET was upgraded to Buy at Citigroup this morning and management also spoke at a Deutsche Bank investor conference, while CZR follows general strength in consumer discretionary stocks.
Meanwhile, Indianapolis-based healthcare firm Elevance Health (ELV 445.88, -13.69, -2.98%) is near the bottom of the S&P, underperforming alongside broader weakness in the healthcare sector.
Gold ends August more than -2% lower
31-Aug-23 14:00 ET
Dow -66.16 at 34824.08, Nasdaq +31.42 at 14050.73, S&P +1.23 at 4516.10
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+0.22%) is leading the way on gains of about 31 points.
Gold futures settled $7.10 lower (-0.4%) to $1,965.90/oz, pressured a bit after this morning's PCE inflation data; thus, the yellow metal ended -2.2% lower this month despite a +1.3% recovery this week.
Meanwhile, the U.S. Dollar Index is up about +0.5% to $103.63.
Page One
Last Updated: 31-Aug-23 09:00 ET | Archive
August closing on improved glide path
Today is the last day of August, but the way this week has been going, there is bound to be some wishing that there were more days yet to come in August. The major indices have staged quite a comeback this week, along with a bounce last Friday, that has cut into monthly losses in a big way.
Entering today, the Nasdaq Composite is up 3.2% for the week and down 2.3% for the month, the Russell 2000 is up 2.7% for the week and down 5.0% for the month, the S&P Midcap 400 is up 2.5% for the week and down 3.1% for the month, the S&P 500 is up 2.5% for the week and down 1.6% for the month, and the Dow Jones Industrial Average is up 1.6% for the week and down 1.9% for the month.
Those results look destined to improve even more at today's open thanks to a strong showing from Dow component Salesforce (CRM) after it reported better-than-expected results and issued Q3 and FY24 guidance above consensus estimates, some carryover momentum, and some palatable economic data that is supportive of something other than a hard landing.
Currently, the S&P 500 futures are up 10 points and are trading 0.2% above fair value, the Nasdaq 100 futures are up seven points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures are up 161 points and are trading 0.5% above fair value.
Personal income increased 0.2% month-over-month in July (Briefing.com consensus 0.3%) following a 0.3% increase in June. Personal spending jumped 0.8% month-over-month (Briefing.com consensus 0.7%) following an upwardly revised 0.6% increase (from 0.5%) in June. The PCE Price Index was up 0.2% month-over-month and so was the core-CPE Price Index, both of which were in-line with expectations.
On a year-over-year basis, however, the inflation readings moved in the wrong direction. The PCE Price Index was up 3.3%, versus 3.0% in June, while the core-CPE Price Index was up 4.2%, versus 4.1% in June.
The key takeaway from the report would have to be the uptick in the year-over-year inflation readings. They weren't of the eye-popping variety; however, they should catch the Fed's eye as a basis not to cut rates anytime soon.
The same can be said for the initial and continuing jobless claims data. Initial claims for the week ending August 26 decreased by 4,000 to 228,000 (Briefing.com consensus 235,000) and continuing claims for the week ending August 19 increased by 28,000 to 1.725 million.
The key takeaway from the report is that initial claims -- a leading indicator -- continue to run at levels that are indicative of a tight labor market that goes hand-in-hand with an economy that is definitely not in a hard-landing pattern.
The Treasury market has taken this morning's data in stride, having already made a big move itself this week that has been instrumental in the stock market making its big move. Currently, the 2-yr note yield is unchanged at 4.88%, but down 18 basis points for the week, and the 10-yr note yield is down two basis points to 4.10%, down 13 basis points for the week.
Similarly, the fed funds futures market hasn't been rankled by the latest batch of economic data. The probability of a 25 basis points rate hike at the November FOMC meeting has dipped to 46.7% from 48.9% shortly before the release of the data.
-- Patrick J. O'Hare, Briefing.com
Five Below heads lower following another of quarter that includes downside guidance (FIVE)
Five Below (FIVE -5%) is heading lower after reporting Q2 (Jul) results last night. As we said in our preview, we were pretty nervous heading into this report. Dollar Tree (DLTR) sold off on earnings, citing an industry shift in consumer purchasing behaviors to consumables and away from discretionary items. Dollar General (DG) is down big today on earnings. On the other hand, ROST and TJX had good quarters.
- FIVE focuses on discretionary items, so that was a concern as consumers shift spend to food/consumables. FIVE beat slightly on EPS with in-line revenue. The bigger problem was pretty sharp downside guidance for Q3 (Oct). FIVE has now guided EPS below consensus in each of the past three quarters.
- Same store comps of +2.7% were decent. They were in-line with +2-3% prior guidance, and at the higher end. However, FIVE guided to Q3 comps of just +0-2%. The silver lining was that FIVE reaffirmed full year comp guidance at +1-3%. The company is pleased with its current inventory levels, which reflect an improved supply chain. FIVE expects to be well positioned for the holiday season.
- FIVE says it was able to tap into the popular Taylor Swift trend with stylish clothing, jewelry, such as friendship bracelets, and beauty products. Licenses began to grow again, as new movie releases like The Super Mario Bros. in April and Barbie in late July drove customers into theaters and Five Below stores. In anticipation of the Barbie movie, FIVE's buyers were able to source several Barbie-related items, all selling for only $5.
Overall, it seems the weak Q3 guidance, both for EPS and comps, is the main reason for the stock being down today. Q3 is an important quarter for FIVE, given that it includes back-to-school and Halloween. With three consecutive quarters of downside EPS guidance, we think investors are nervous about the upcoming all-important holiday season for Five Below.
Chewy sinks to 52-week lows as management forecasts a challenging near-term demand landscape (CHWY)
Chewy's (CHWY -11%) Q2 (Jul) earnings are triggering further selling pressure today as the e-commerce pet food and supplies retailer issued bearish Q3 (Oct) guidance and alarming comments. Chewy did exceed top and bottom-line forecasts in Q2. However, exiting the summer months, Chewy sensed a shift in consumer tastes amid sticky inflation. The company's conversations with suppliers confirmed that these trends permeate the pet industry.
Although Petco Health & Wellness (WOOF) initially sounded an alarm last week, experiencing greater-than-anticipated adverse impacts to its top and bottom lines, other prominent pet food suppliers were not too concerned by the economic landscape. For instance, General Mills (GIS), which owns the Blue Buffalo banner, noted in late June that its dry pet food and treats businesses recovered nicely during MayQ, only seeing a minor drop in its wet pet food division as consumers spend less time at home since the pandemic and inflationary pressures dampen premium pet food demand. However, premium pet food distributor Freshpet (FRPT) bucked this trend, accelerating sales volume growth in JunQ. Meanwhile, J.M. Smucker (SJM) registered +21% comparable pet food sales growth during JulQ.
Chewy did state that its consumer loyalty, Autoship offering, and growing Chewy Health ecosystem insulate it more than others from macroeconomic pressures. However, the company conceded that it is not entirely exempt. Pet household formation remains relatively muted, generating a challenging environment to accurately forecast consumer behavior. As a result, although Chewy kept its FY24 (Jan) revenue outlook unchanged at $11.15-11.35 bln, it now anticipates a broader range of potential outcomes. Management also issued downbeat Q3 revenue guidance of $2.74-2.76 bln, representing a sequential decline of 1% at the midpoint.
- Turning to Q2 results, Chewy delivered a surprise profit, posting adjusted earnings of $0.15 per share, matching the year-ago figure. At the same time, the company kept revenue consistent from last quarter, growing 14.4% yr/yr to $2.78 bln.
- Autoship, a critical attribute of steady revenue growth, continued to outpace Chewy's top line, increasing its total share of net sales to 76%, up a point from last quarter. Autoship also positively impacted net sales per active customer (NSPAC), which expanded by 15% yr/yr to $530.
- On a less enthusiastic note, adjusted EBITDA margins slipped by 30 bps yr/yr to 3.1%. However, management was excited about margin expansion over time, as it improves its fulfillment cost efficiencies, which have been offset by the impact of various growth investments, and increasing automation at its distribution facilities.
Inflation is starting to weigh heavily on pet owners. Although pet food prices are relatively inelastic, consumers can slowly trade down, change where they purchase their products, and cut back on supplies when their budgets become more and more squeezed. Chewy still commands a sturdy positioning within the pet industry. However, it may be difficult to get its ducks in a row when other mass merchants, such as Walmart (WMT) and Amazon (AMZN), can offer similar deals and value entirely online, while price clubs like Costco (COST) can offer a lower price per ounce.
CrowdStrike results and outlook are a hit as company bucks trend of slowing IT spending (CRWD)
Enterprises may be practicing more prudence with their IT spending budgets, but cybersecurity company CrowdStrike (CRWD) is still seeing robust demand for its offerings as illustrated by its impressive beat-and-raise Q2 earnings report.
Despite the challenging backdrop, CRWD's upsell and new logo pipeline reached a record level, fueled by strong growth for its cloud security products. In a highly competitive market, CRWD is setting itself apart from the field due to the wide-ranging capabilities of its AI-powered Falcon platform. Rather than patching together several single-feature cybersecurity products, enterprises are turning to CRWD's seamless platform to drive better efficiencies and savings by cutting down on integration and management costs.
- A key metric that highlights the strength of CRWD's business is annual recurring revenue (ARR), which increased by 37% yr/yr to $2.9 bln with particular strength in its cloud security and identity protection offerings. In fact, cloud security net new ARR reached a new record in Q2, pushing total net new ARR higher by 13% sequentially to $196.2 mln, beating expectations.
- Based on the momentum underlying its business, CRWD expects to achieve double-digit net new ARR growth in 2H24, bucking the trend of slowing IT spending that many other tech companies are experiencing.
- The strong top-line growth, coupled with the significant operating leverage achieved through greater scale, enabled CRWD to generate record non-GAAP operating margin of 21.3% and record non-GAAP net income, which surged by 109% yr/yr.
- Margins are expected to remain very healthy, too, as indicated by CRWD's upwardly revised FY24 EPS guidance of $2.80-$2.84. The new guidance is a significant jump higher from its prior forecast for EPS of $2.32-$2.43.
The main takeaway is that CRWD's stellar Q2 results and outlook showcase the company's strong competitive position and the resilience of its business in a difficult environment. While CRWD also dealt with heightened deal scrutiny and elongated sales cycles, the significant advantages offered by its Falcon Platform, including the high speed and ease of deployment, enabled CRWD to mitigate the headwinds better than its peers.
Salesforce is a force today following impressive beat-and-raise despite higher deal scrutiny (CRM)
Salesforce (CRM +4%) is a force today as the stock is up nicely following its Q2 (Jul) earnings report last night. CRM beat handily on EPS and revenue. The guidance was strong with upside EPS and revs for both Q3 (Oct) and FY24, driven by strength in its subscription and support revenue, particularly MuleSoft. This was partially offset by some continued weakness in professional services.
- From a geographic perspective, the Americas revenue grew 10%, EMEA grew 13% (11% constant currency) and APAC grew 20% (24% CC). CRM saw strong new business growth internationally, highlighted by Canada, France, and India, while the US continues to be constrained. From an industry perspective, manufacturing, automotive and energy saw greater resilience, while high tech and retail and consumer goods were more measured.
- CRM reported that it saw consistent demand in its core business in Q2 and it continues to benefit from customers consolidating their technology platforms to reduce complexity, drive efficiency and growth. For example, 6 of its top 10 wins in the quarter included 5 or more clouds. CRM also saw add-on products like sales performance management, digital service, self-service and marketing engagement grow 40%. And to help smaller business customers, CRM introduced a new product called Salesforce Starter in Q2, bringing sales, service and marketing into one integrated offering.
- The strong results were all the more impressive considering some pretty cautious comments on the macro outlook. Specifically, CRM is seeing a measured macro environment, which continues to impact customer decision-making. CRM is still seeing elongated sales cycles, additional deal approval layers, and deal compression in its subscription and support and professional services businesses. Compression of larger transformational deals continued in the quarter, affecting its professional services growth. All of these factors are incorporated in its guidance.
- Something that stands out are CRM's margins. In Q2, non-GAAP operating margin surged to 31.6% from 19.9% a year ago. This is the second quarter in a row where operating margin rose by 1,000+ bps yr/yr. Last quarter, CRM raised its FY24 non-GAAP operating margin guidance to 28% with the expectation to eclipse 30% in 1Q25. CRM reached that goal in Q2, several quarters early. This performance has allowed CRM to raise its FY24 outlook again to 30%, a 750 bps improvement yr/yr.
Clearly, investors are pleased with CRM's Q2 results and guidance. These were impressive numbers considering that CRM is seeing higher deal scrutiny. We also think that the pullback in the share price since early July showed that expectations were not sky high going into this report, so that is also likely helping the stock today. Also, we think investors were pleased to see CRM get back to double-digit EPS upside after a more narrow beat in Q1, plus the Q3 guidance was pretty robust.
Okta pops as signs of stabilization in JulQ, a 180 from last quarter, ignite a powerful rally (OKTA)
Okta (OKTA +12%) secures a breakout from its lengthy consolidation pattern today following a big beat-and-raise in Q2 (Jul). The identity management software supplier has been trading sideways over the past several months leading into its Q2 report, reflecting some uneasiness after numerous software-based companies touched on unwavering macroeconomic pressures dampening spending. However, OKTA relieved broader demand-related fears by exceeding headline estimates in Q2 and hiking its FY24 (Jan) projections, underscoring a healthy degree of resilience to a challenging economic environment.
- Adjusted EPS remained positive for the third consecutive quarter at $0.31, a stark improvement over the $(0.10) posted in the year-ago period, highlighting OKTA's quick pivot to profitability amid an arid spending climate. Revenue climbed 23% yr/yr to $556 mln, an ongoing deceleration from the growth in the previous five quarters. Still, the yr/yr increase was much better than the +18% at the midpoint of OKTA's initial forecast.
- Although management acknowledged that economic conditions remained unfavorable in Q2, with upsells outpacing new business as expanding existing relationships proves easier than forming new ones, they were encouraged by stabilization trends occurring during the quarter. For instance, OKTA observed modest sequential improvements in contract duration and average deal sizes. At the same time, the split between new business versus upsells and seat expansion is also normalizing.
- That is not to say certain metrics avoided being adversely impacted. Current remaining performance obligations (cRPO) grew just 18% yr/yr to $1.77 bln, further decelerating from the +20% posted last quarter. RPO backlog also slowed to +8% growth from +9% in Q1. Meanwhile, new customer growth continued to weaken, increasing just 12% yr/yr compared to a +14% bump last quarter. Nevertheless, OKTA's comments were a 180 compared to last quarter, when management noted that the economic situation only worsened in the quarter, plagued by shorter contract terms and smaller average deal sizes.
- OKTA did stay realistic about the economy, expressing the importance of maintaining a prudent near-term outlook. Nevertheless, the company raised its FY24 guidance after another quarter of solid outperformance, projecting adjusted EPS of $1.17-1.20, up from $0.88-0.93, and revs of $2.207-2.215 bln, increased from $2.175-2.185 bln.
The main takeaway from Q2 is that OKTA is starting to see signs of stabilization, an encouraging development following the worsening trends witnessed last quarter. The identity management space remains highly competitive, with OKTA up against large players like IBM (IBM) and smaller firms like PingIdentity, which was taken private last year. However, the company's rapid shift to profitability and ability to deliver solid results amid an obstacle-ridden economic backdrop showcases its software's stickiness and importance within the cybersecurity field, a good sign for its long-term success.
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