Market Snapshot
| Dow | 39431.51 | -81.33 | (-0.21%) | | Nasdaq | 16388.24 | +47.37 | (0.29%) | | SP 500 | 5221.42 | -1.26 | (-0.02%) | | 10-yr Note | +23/32 | 4.489 |
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| | NYSE | Adv 1421 | Dec 1309 | Vol 945 mln | | Nasdaq | Adv 2287 | Dec 1954 | Vol 4.4 bln |
Industry Watch
| Strong: Information Technology, Real Estate |
| | Weak: Communication Services, Consumer Staples, Consumer Discretionary, Industrials |
Moving the Market
-- Losses in some mega cap stocks
-- Early buyer enthusiasm fading somewhat
-- Drop in market rates
-- Wait-and-see in front of PPI on Tuesday, CPI on Wednesday
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Closing Summary
13-May-24 16:30 ET
Dow -81.33 at 39431.51, Nasdaq +47.37 at 16388.24, S&P -1.26 at 5221.42
[BRIEFING.COM] The major indices started the day with gains thanks in part to carryover momentum after recent upside moves. The initial buying activity quickly faded, however, leading the major to trade in mixed fashion through most of the session. Ultimately, the S&P 500 closed little changed from Friday.
The market was lacking directional catalysts today as participants looked ahead to the release of the April Producer Price Index at 8:30 ET tomorrow. The April Consumer Price Index will be released Wednesday at 8:30 ET.
This week's calendar also features earnings results from Dow components Home Depot (HD 340.96, -5.47, -1.6%), Cisco (CSCO 48.68, +0.62, +1.3%), and Walmart (WMT 60.41, -0.07, -0.1%).
Today's docket included the New York Fed's latest Survey of Consumer Expectations, which showed an increase in year-ahead inflation expectations to 3.3% from 3.0%. The Treasury market didn't react much to the report. The 10-yr note yield settled two basis points lower at 4.48% and the 2-yr note yield settled one basis point lower at 4.86%. The price action in Treasuries acted as support for equities, which also had a muted reaction to the report.
Some stocks closed with outsized gains today despite the muted index-level action. Shares of GameStop (GME 30.45, +12.99, +74.4%) surged following the first X post by "Roaring Kitty" in three years. Other stocks like Beyond Inc (BYON 19.79, +2.93, +17.4%), Koss Corp (KOSS 4.37, +1.17, +36.7%), and AMC Entertainment (AMC 5.19, +2.28, +78.4%) also benefitted from speculative buying interest.
- S&P 500:+9.5% YTD
- Nasdaq Composite: +9.2% YTD
- S&P Midcap 400: +7.5% YTD
- Dow Jones Industrial Average: +4.6% YTD
- Russell 2000: +1.7% YTD
Stocks still lacking direction in front of close
13-May-24 15:30 ET
Dow -59.56 at 39453.28, Nasdaq +42.09 at 16382.96, S&P -1.19 at 5221.49
[BRIEFING.COM] The Nasdaq Composite (+0.3%) and Russell 2000 (+0.3%) continue to outperform other major indices.
The market has been lacking directional catalysts today as participants looked ahead to the release of the April Producer Price Index at 8:30 ET. The April Consumer Price Index will be released Wednesday at 8:30 ET.
This week's calendar also features earnings results from names like Home Depot (HD), Alibaba (BABA), Cisco (CSCO), JD.com (JD), Walmart (WMT), Baidu (BIDU), Deere (DE), Applied Materials (AMAT), and others.
Treasury yields move slightly higher
13-May-24 15:05 ET
Dow -72.15 at 39440.69, Nasdaq +42.95 at 16383.82, S&P -1.17 at 5221.51
[BRIEFING.COM] Things are little changed at the index-level over the last half hour. The S&P 500 is trading at its prior closing level.
Treasury yields have moved slightly higher. The 10-yr note yield, which was at 4.47% earlier, sits at 4.49% now.
Elsewhere, Microsoft (MSFT 414.21, -0.53, -0.1%) had been trading higher earlier, but trades lower now.
Midday Summary
13-May-24 13:05 ET
Dow -89.59 at 39423.25, Nasdaq +15.47 at 16356.34, S&P -8.07 at 5214.61
[BRIEFING.COM] The major indices have exhibited mixed price action so far today. The S&P 500 and Dow Jones Industrial Average are trading near their prior closing levels. The Nasdaq Composite is trading up 0.3% and Russell 2000 outperforms, showing a 0.6% gain.
The market had been trading higher initially, driven by carryover momentum from recent gains. Early buyer enthusiasm faded somewhat with no specific catalyst. Market breadth is still positive, but margins have narrowed compared to earlier in the session.
Shortly after the open, advancers lead decliners by a 5-to-2 margin at both the NYSE and at the Nasdaq. Now, advancers have a 5-to-3 lead over decliners at the NYSE and a 2-to-1 lead at the Nasdaq.
Four of the 11 S&P 500 sectors trade higher led by information technology (+0.7%), which has benefitting from turnaround action Microsoft (MSFT 415.18, +0.45, +0.1%). Shares of Apple (AAPL 186.95, +3.68, +2.0%) have been trading higher through the session, sitting near intraday highs now.
There has also been some speculative interest driving some meme stocks sharply higher following the first X post by "Roaring Kitty" in three years. GameStop (GME 29.41, +11.95, +68.2%) is surging in response.
There was no U.S. economic data of note on today's calendar, but this week features the April Producer Price Index on Tuesday and the April Consumer Price Index on Wednesday.
MSFT, AAPL, NVDA trade higher, boosting broader market
13-May-24 12:35 ET
Dow -11.39 at 39501.45, Nasdaq +61.25 at 16402.12, S&P +3.12 at 5225.80
[BRIEFING.COM] The major indices are climbing off session lows.
Upside moves coincided with Microsoft (MSFT 415.35, +0.61, +0.2%) recovering from early weakness after trading down as much as 0.9%. Some other heavily-weighed like Apple (AAPL 186.34, +3.29, +1.8%) and NVIDIA (NVDA 909.80, +11.12, +1.5%) names extended early gains.
Elsewhere, the 10-yr note yield is down two basis points from Friday at 4.48%.
Fortrea plunges after cutting FY24 guidance as struggles continue following spin-off (FTRE)
Fortrea (FTRE), a contract research organization (CRO) that was spun-off from LabCorp (LH) in July 2023, is plunging to its lowest levels of the year after reporting downside Q1 results and cutting its FY24 revenue and adjusted EBITDA guidance. This was the company's third earnings report since the spin-off, but it's the first time that it reported a yr/yr decline in revenue, which decreased by nearly 5% to $662.1 mln as revenue is returning more slowly than it anticipated following a disappointing Q4 performance.
- There are a lot of moving parts surrounding FTRE's story right now. Not only is FTRE still disentangling itself from LH and trying to build its own brand awareness, but the company is also working through the divestiture of its Enabling Services segment, which is called Endpoint Clinical. The reasoning for the divestiture is that FTRE wants to become a pure-play CRO, focusing on Phase 1 to 4 clinical services, and the deal to sell the business to Arsenal Capital Partners will also raise $345 mln in capital.
- However, it appears that FTRE's sales execution may be lagging a bit as the company navigates through these major changes. During the earnings call, FTRE stated that the drug development environment remains strong and that biotech funding in Q1 was healthy. Despite the favorable landscape, though, FTRE fell still short of its targeted book-to-bill of 1.2 for Q1 as a couple expected transactions didn't come through.
- FTRE also lowered its FY24 revenue guidance to $2.79-$2.86 bln from its prior forecast of $3.14-$3.21 bln. The company believes that the softer outlook is related to timing issues, while noting that its opportunity pipeline has grown relative to last quarter. More specifically, FTRE disclosed that the quantity of deals are up mid-single-digits and on a dollar value basis, the pipeline is up by solid double-digits.
- Beyond the revenue shortfall, the company said that its transformation is on track and that it expects to be past the complexities of the spin-off in 2025. One of those complexities is related to the transition service agreements (TSAs) that were put in place with LH following the spin-off.
- These TSAs, which provide FTRE with certain services such as HR, payroll, and finance following a spin-off or divestiture, are costly and are negatively impacting margins. FTRE has now exited about half of its TSA's with its former parent and it has plans to exit the majority of remaining TSAs around the end of 2024.
Overall, though, the story hasn't changed much since the end of last quarter. FTRE is still a company in transition, and it will likely take a couple more quarters before its business starts to normalize.
Intel's foundry ambitions receive a boost with reported Apollo Global Management partnership (INTC)
Intel (INTC), with shares down by about 40% year-to-date, is badly in need of some good news, especially after the U.S. Department of Commerce revoked certain export licenses to China and after the chip maker lowered its already soft Q2 revenue guidance last week. This morning, a ray of sunlight broke through the clouds for INTC as the Wall Street Journal reported that Apollo Global Management (APO) is nearing a deal with INTC to provide $11 bln in capital to help construct a new manufacturing plant in Ireland.
- The new partnership would represent a major vote of confidence from APO in INTC's "IDM 2.0" transformation initiative, which is the company's strategy of rededicating itself to technology leadership, while also transitioning to a foundry model. It also comes at a time when investor confidence in this transformation plan is sinking as NVIDIA (NVDA) and Advanced Micro Devices (AMD) continue to widen their leads against INTC in the AI race.
- In the data center market, where enterprises are investing billions to build out AI infrastructure, AMD generated record Q1 revenue of $2.3 bln, up 80% yr/yr. In contrast, INTC's Data Center and AI (DCAI) segment saw revenue grow by just 5% yr/yr to $3.0 bln, putting market share losses back under the spotlight.
- INTC's struggles make it all the more difficult to finance the buildout of new fabs in Arizona, Ohio, New Mexico and Ireland that will cost at least $100 bln. On that note, INTC's cash flow from operations in FY23 decreased by 26% yr/yr to $11.5 bln, putting more strain on its ability to fund its massive capex plans, while increasing its reliance on outside investors to help bridge the gap.
- Some of that help is coming in the form of government loans. On March 20, the White House announced that it has awarded INTC up to $8.5 bln in CHIPS Act funding as the U.S. government looks to lessen the country's dependence on chips made in Taiwan.
- For INTC's part, the company has said that it's aiming to become the world's second largest wafer foundry by 2030, behind only Taiwan Semiconductor Manufacturing (TSM). It's an ambitious goal and so far, the path to achieving that objective has been very rocky. In the company's Q1 earnings report, it disclosed that revenue at its foundry business fell by 10% to $4.4 bln, while the operating loss worsened to ($2.5) bln from ($1.3) bln in Q4.
- One silver lining is that INTC added another customer for its production technology called 18A, bringing the total number of customers to six. One of those customers happens to be Microsoft (MSFT), so there is some reason for optimism there.
The main takeaway is that securing a partnership with a deep-pocketed firm like APO is a critical step in INTC's mission of becoming a foundry power, but there will be more peaks and valleys along the way in this monumental transformation and turnaround attempt.
Apple jumps after nearing a deal with OpenAI; makes for an interesting WWDC event next month (AAPL)
Apple (AAPL +1%) has been quiet on AI compared to the bulk of its peers, such as Android-powered devices from Google (GOOG) and Samsung (SSNLF), which have been implementing numerous AI features over the past year. Following the iPhone maker's Q2 (Mar) report earlier this month, management expressed excitement over its Generative AI opportunity. Given Apple's dominant global smartphone market share, going back-and-forth with Samsung for the lead, as well as its portfolio of other iOS devices, from the iPad to iWatch, its "AI opportunity" is seriously understated.
This opportunity is what makes investors excited today. Bloomberg reported that Apple was close to inking a deal with OpenAI (MSFT), the company behind ChatGPT. Apple also reportedly held talks with Google regarding its Gemini AI. With WWDC 2024 happening next month, when Apple typically previews its latest iOS (this year being iOS 18), investors are growing excited over the potential for Generative AI technology to finally arrive on iOS devices.
While AI in iOS 18 is thrilling for current iOS users, more importantly, it could shift a meaningful number of Android users into the Apple ecosystem, helping the company reignite iPhone demand following several quarters of weakening sales growth.
- iPhone revs missed estimates in Q2 for the first time in nearly a year, leading to a 4% drop yr/yr and a 24% decline sequentially in consolidated sales. While lighter-than-expected iPhone sales primarily emerged from an unfavorable demand backdrop, especially in China, where revenue slipped by 8% yr/yr, competitive pressures likely also played a role. For instance, Samsung's Galaxy flagship, which includes Galaxy AI among other AI-related features, was the underlying driver behind the company's 6% sequential bump in total revs in MarQ.
- iPad demand has also stagnated recently. Apple just unveiled its newest iPads, going 18 months since its last refresh, a more extended timeframe than usual. The longer refresh cycle may be what kickstarts iPad demand. iPad has long been a consumer's foray into the Apple world, given the leadership positioning the tablet boasts in its market. Therefore, rekindling interest in this device can significantly benefit Apple's other products.
- Apple also mentioned how the MacBook's M3 chip, custom-designed by Apple and supplied by Taiwan Semi (TSM), will be a powerful AI machine. With PC users already having Microsoft's AI-powered Copilot app, MacBook users may be feeling left out. Perhaps Apple has more comprehensive AI-related plans for its Mac lineup.
The market was well aware of Apple's intentions to incorporate AI into its iDevices following numerous reports over the past several months hinting at Apple's discussions with AI tech firms as well as Mr. Cook's comments during the company's MarQ earnings report. However, following today's report, it is all but confirmed that WWDC will showcase various compelling AI-enabled features. However, as has become fairly common, WWDC tends to be a sell-the-news event. Still, without AI demos leaking into the mainstream, Apple may be able to bring some pleasant surprises to the table next month.
Tencent Music is singing a tune that investors like; trades to new highs following Q1 upside (TME)
Tencent Music (TME +9%) is singing a nice tune for investors as it trades nicely higher following its Q1 results this morning. This operator of an online music and audio entertainment platform in China beat handily on both EPS and revenue.
- Revenue declined 3.4% yr/yr to RMB6.77 bln (US$937 mln) but it is really a tale of two cities. Revenue from its online music services surged 43% yr/yr to US$693 mln, driven by growth in music subscription revenues, supplemented by growth in advertising services. TME says growth was driven by further expansion in the online music paying user base and healthy ARPPU.
- Speaking of which, the number of online music paying users increased by 20.2% yr/yr to 113.5 mln in Q1. On a sequential basis, it grew by 6.8 mln users, the largest sequential increase to date. Revenue from music subscriptions rose 39.2% yr/yr to US$501 mln. TME cited increased users' willingness to pay for appealing membership privileges, expanded content, and attractive interactive features.
- TME also said it capitalized on the Chinese New Year with targeted multi-channel promotions, attracting a larger-than-expected number of paying users. It also introduced large audio models to increase music promotion accuracy and a new AI Assistant to make music discovery more fun and engaging. TME also launched a new rewards program and a series of interactive features including themed song-guessing contests and subscriber badges with the goal to increase user stickiness.
- The laggard segment by far was its social entertainment services unit. Revenue here dropped by nearly half to US$244 mln. TME said this was mainly due to adjustments to certain live-streaming interactive functions and more stringent compliance procedures, as well as increased competition with other platforms. The silver lining is that this segment is a lot smaller, but that was a huge drop in revenue and dragged down total revenue.
Overall, investors clearly like what they saw with TME's strong Q1 results. Its online music segment has now posted back-to-back 20+% yr/yr paying user growth. Its social entertainment segment continues to be a drag on overall results as it has in recent quarters. However, investors seem to be focusing more on the robust music segment. The stock has been on an impressive, steady uptrend since early October and this report is adding to that, to a new 2+ year high.
Unity Software sinks as investors remain in wait-and-see mode over an expected 2H24 recovery (U)
Unity Software (U -8%) turns toward multi-year lows despite exceeding earnings and revenue estimates in Q1 and reaffirming its financial goals for FY24. The software development platform, used widely across the video game industry, kicked off a company-wide reset last year following pricing backlash under former CEO John Riccitiello. While stating that it remains on track to achieve its previously outlined financial aspirations for the year was encouraging, Unity still has a long way to go to recover the lost ground from a sour combination of waning consumer demand and wrong turns by management. Without seeing quicker signs of its reset actions manifesting in the numbers, investors remained turned off, keeping their boot on the stock.
- Alongside Unity's Q1 report was its announcement that former Zynga (TTWO) COO Matt Bromberg would become the permanent CEO next week, replacing interim CEO Jim Whitehurst, who is transitioning to Executive Chair. Mr. Bromberg will likely stay the course, at least for the near term, potentially testing investors' patience as they wait for Unity's turnaround actions to reignite growth.
- Thus far, Unity's focus on what it does best -- Engine, Cloud, and Monetization -- has not moved the needle surrounding revenue. Unity registered an 8.1% drop in revs yr/yr during Q1 to $460 mln. However, this is largely due to Unity's lagging non-core businesses. When focusing purely on its strategic portfolio (comprised of its core businesses), revs ticked 2% higher yr/yr to $426 mln, exceeding its $415-420 mln outlook.
- Divesting its non-core assets and emphasizing profitability has resulted in a decent uptick in adjusted EPS, which expanded to $0.35 in the quarter compared to $0.03 in 1Q23. Profitability remains an important gauge of whether Unity's reset is progressing favorably. In Q1, adjusted EBITDA grew by $50 mln yr/yr, keeping the company on track to achieve its $400-425 target by year's end. Unity also expects to still exit the year with adjusted EBITDA margins of over 25%.
- Hitting its FY24 targets will depend on growth accelerating following a disappointing Q2. Unity anticipates Q2 strategic revenue to slip by 6-7% yr/yr, a sharp U-turn from the minor growth delivered in Q1. After clearing this speed bump, Unity is energetic about 2H24, reaffirming its projection of accelerating growth, culminating in a +2-4% jump in strategic revs yr/yr.
With shares stuck around multi-year lows, the question following Unity's Q1 report is whether the company is doing enough to plug the holes of a sinking ship. We mentioned last quarter that Unity's reset plan could be its ticket out of a lengthy downward trend. However, upbeat commentary surrounding its turnaround plan will not cut it, especially given how long the stock has traded sideways. Progress must show up in Unity's numbers. We believe investors are deploying a wait-and-see attitude at the moment, remaining on the sidelines until the second half of the year, when Unity has repeatedly mentioned will be the beginning of a long-awaited recovery.
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