Market Snapshot
| Dow | 39908.00 | +349.89 | (0.88%) | | Nasdaq | 16742.39 | +231.21 | (1.40%) | | SP 500 | 5308.15 | +61.47 | (1.17%) | | 10-yr Note | +28/32 | 4.36 |
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| | NYSE | Adv 1973 | Dec 830 | Vol 984 mln | | Nasdaq | Adv 2572 | Dec 1667 | Vol 8.6 bln |
Industry Watch
| Strong: Information Technology, Real Estate, Utilities, Health Care, Financials, Industrials |
| | Weak: Consumer Discretionary |
Moving the Market
-- Reacting to April CPI, which went the market's way in terms of implications for Fed policy
-- Drop in market rates
-- Mega caps having outsized impact on index gains, but many stocks coming along for upside moves
-- Meme stocks run into profit-taking activity
Closing Summary
15-May-24 16:30 ET
Dow +349.89 at 39908.00, Nasdaq +231.21 at 16742.39, S&P +61.47 at 5308.15
[BRIEFING.COM] The S&P 500 (+1.2%), Nasdaq Composite (+1.4%), and Dow Jones Industrial Average (+0.8%) closed at or near their best levels of the day, setting fresh record highs. Today's price action was in response to the April Consumer Price Index (CPI).
The report showed disinflation on a year-over-year basis in total CPI (to 3.4% from 3.5%) and core CPI (to 3.6% from 3.8%). This followed three consecutive hotter-than-expected CPI readings, along with some other recent reports that indicated sticky prices, which contributed to growing worries about the Fed staying restrictive for longer than anticipated.
Market rates settled sharply lower in response to the data. The 10-yr note yield settled nine basis points lower at 4.36% and the 2-yr note yield declined eight basis points to 4.74%. This price action also followed April Retail Sales data, which reflected a slowdown in consumer spending activity.
Rate cut expectations moved up in response to the data. The fed funds futures market is pricing in a 75.3% probability of a rate cut at the September FOMC meeting, up from 65.1% yesterday, according to the CME FedWatch Tool.
Many stocks participated in broad-based gains. Four S&P 500 sectors closed more than 1.0% higher led by information technology (+2.3%) by a decent margin. The info tech sector benefitted from outsized gains in some semiconductor stocks. NVIDIA (NVDA 946.30, +32.74, +3.6%) and Broadcom (AVGO 1436.17, +56.14%) were standouts in that respect.
Meanwhile, the consumer discretionary sector was the worst performer, settling little changed from yesterday after the retail sales data from April reflected more discernment on the part of the consumer with discretionary spending. Losses in Tesla (TSLA 173.99, -3.56, -2.0%) and Amazon.com (AMZN 185.99, -1.08, -0.6%) contributed to the sector's underperformance.
In other news, meme stocks encountered some profit-taking activity after massive moves higher over the last few sessions. GameStop (GME 39.55, -9.20, -18.9%) and AMC Entertainment (AMC 5.48, -1.37, -20.0%) logged sharp declines today.
- S&P 500:+11.3% YTD
- Nasdaq Composite: +11.5% YTD
- S&P Midcap 400: +9.3% YTD
- Dow Jones Industrial Average: +5.9% YTD
- Russell 2000: +4.1% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 0.5%; Prior 2.6%
- April CPI 0.3% (Briefing.com consensus 0.4%); Prior 0.4%; April Core CPI 0.3% (Briefing.com consensus 0.3%); Prior 0.4%
- The key takeaway from the report is that there were no negative surprises. The line on consumer inflation is that it improved year-over-year, which is important if the Fed is ever going to walk the line to a rate cut; however, the disinflation in April is still only a baby step toward the Fed's 2% inflation target, which will leave the Fed stuck in a watch-and-wait mode.
- April Retail Sales 0.0% (Briefing.com consensus 0.4%); Prior was revised to 0.6% from 0.7%; April Retail Sales ex-auto 0.2% (Briefing.com consensus 0.2%); Prior was revised to 0.9% from 1.1%
- The key takeaway from the report is that it reflects more discernment on the part of the consumer with discretionary spending activity, which is consistent with a growing body of anecdotal reports highlighting the weakening activity seen from low-income and middle-income consumers.
- May NY Fed Empire State Manufacturing -15.6 (Briefing.com consensus -9.0); Prior -14.3
- March Business Inventories -0.1% (Briefing.com consensus 0.0%); Prior was revised to 0.3% from 0.4%
- May NAHB Housing Market Index 45 (Briefing.com consensus 51); Prior 51
Thursday's economic data features:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 218,000; prior 231,000), Continuing Claims (prior 1.785 mln), April Housing Starts (Briefing.com consensus 1.440 mln; prior 1.321 mln), Building Permits (Briefing.com consensus 1.488 mln; prior 1.458 mln), April Import/Export Prices, and May Philadelphia Fed survey (Briefing.com consensus 5.0; prior 15.5)
- 9:15 ET: April Industrial Production (Briefing.com consensus 0.2%; prior 0.4%) and Capacity Utilization (Briefing.com consensus 78.4%; prior 78.4%)
- 10:30 ET: Weekly natural gas inventories (prior +79 bcf)
Treasuries settle with solid gains
15-May-24 15:35 ET
Dow +305.23 at 39863.34, Nasdaq +230.16 at 16741.34, S&P +56.87 at 5303.55
[BRIEFING.COM] The major indices are hanging out near session highs heading into the close.
Treasuries settled with solid gains today, leaving yields at five-week lows. The 10-yr note yield settled nine basis points lower at 4.36% and the 2-yr note yield declined eight basis points to 4.74%.
Cisco (CSCO), ZTO Express (ZTO), Copa Holdings (CPA), and Grab (GRAB) report earnings after the close. Looking ahead, JD.com (JD), Walmart (WMT), Baidu (BIDU), Deere (DE), Under Armour (UAA), and others report earnings in front of Thursday's open.
S&P 500 flirts with 5,300
15-May-24 15:00 ET
Dow +270.56 at 39828.67, Nasdaq +214.56 at 16725.74, S&P +53.11 at 5299.79
[BRIEFING.COM] The S&P 500 continues to trade around the 5,300 level, near its best level of the day and of all-time.
Some S&P 500 sectors are still trading lower despite ongoing upside moves at the index level. The consumer discretionary sector (-0.3%) is the weakest performer followed by materials (-0.04%).
Treasuries are near intraday low yields. The 10-yr note yield is at 4.35%.
Chemical firm Albemarle drops in S&P 500
15-May-24 14:30 ET
Dow +271.62 at 39829.73, Nasdaq +215.35 at 16726.53, S&P +54.40 at 5301.08
[BRIEFING.COM] The S&P 500 (+1.04%) is in second place on Wednesday afternoon, up about 54 points.
Elsewhere, S&P 500 constituents Super Micro Computer (SMCI 934.77, +112.40, +13.67%), D.R. Horton (DHI 156.05, +8.05, +5.44%), and MarketAxess (MKTX 215.13, +10.71, +5.24%) dot the top of today's standings.
Meanwhile, North Carolina-based chemical manufacturer Albemarle (ALB 127.57, -7.89, -5.82%) is the average's top laggard despite a dearth of corporate news.
Gold benefits from weaker dollar, yields
15-May-24 14:00 ET
Dow +286.60 at 39844.71, Nasdaq +211.69 at 16722.87, S&P +53.57 at 5300.25
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+1.28%) holds its own atop the major averages, up about 210 points as we approach two hours left in the session.
Gold futures settled $35.00 higher (+1.5%) to $2,394.90/oz, benefiting from lower treasury yields and weakness in the dollar.
Meanwhile, the U.S. Dollar Index is down about -0.6% to $104.34.
The Big Picture
Last Updated: 10-May-24 15:35 ET | Archive
So much easy money
Saving money can be easier said than done. There are a lot of uses for one's money. Some (like vacations) are fun, some (like hospital bills) are not, and others (like food) are essential.
Some people have plenty of disposable income, making it easier for them to save. Others live paycheck-to-paycheck, making it nearly impossible to set aside cash in a reserve fund. The general rule of thumb espoused by financial planners is that one should aim to save three to six months' worth of living expenses in an emergency fund.
Ideally, that fund will be earning some interest on that idle cash and not losing purchasing power stashed in a coffee can or under a mattress.
Of course, it wasn't that long ago when cash was losing purchasing power even if it was kept in an interest-bearing account. That's when the Fed was holding its policy rate at the zero bound and when many financial institutions were keeping depositors' savings rates near the zero bound as well. That started to change in March 2022 when the Fed began raising rates to fight back in an inflation battle it had been losing badly.
There have been 11 rate hikes during the Fed's tightening campaign. Those rate hikes have helped it score some wins in the inflation battle, but it has not yet won the war. In any case, those rate hikes have been instrumental in driving up deposit rates, CD rates, bond rates, and interest rates in general, which includes rates on revolving and non-revolving credit.
The higher rates aren't all good, then, but they have been indisputably good for savers who had been fighting a losing battle on the interest rate front since the financial crisis.
It is little wonder, then, that savers are seeking yield and finding it in many places that are providing some real returns for their emergency and non-emergency funds. In one sense, that makes the stock market's run to new record highs all the more remarkable. In another sense, it offers a nice cushion of latent support for the stock market if/when rates come down.
Easy Money
The numbers are stunning.
Total money market fund mutual fund assets stand at $6.03 trillion with $2.42 trillion in retail funds and $3.61 trillion in institutional funds, according to the Investment Company Institute. That is up from $3.63 trillion, $1.37 trillion, and $2.26 trillion, respectively, just before the Covid storm and the fiscal/monetary policy stimulus that rained down on the U.S. in its wake.
The chart above shows the ramp in money market mutual fund assets that started when the Fed started its rate hikes in 2022, moving the target range for the fed funds rate from 0.00-0.25% to its current level of 5.25-5.50%.
Money market mutual funds invest in highly liquid and short-term securities like Treasury bills, commercial paper, and certificates of deposit, which is to say lower-risk securities.
The yield on money market mutual funds just before Covid struck was less than 0.50%. Nowadays, you can find 7-day SEC yields (an estimate of the annualized yield based on the income generated by the fund over the previous seven days) north of 5.00% on money market mutual funds.
With the Consumer Price Index up 3.5% over the last 12 months, that is an attractive, relatively risk-free rate that affords a real return for savers not wanting to deploy capital (or as much capital) in the higher-risk stock market.
It is tantamount to "easy money," whereby the cash works for you. Of course, it is also "idle money" with little productive capacity to drive increased economic growth. In brief, higher rates are good for savers, but less so for the economy.
What It All Means
The stock market has been cheered of late by the idea that the Fed is unlikely to raise rates again. That is understandable because the stock market often loses out (but doesn't necessarily lose) when rates go up, as future cash flows become worth less and capital finds its way to lower-risk alternatives.
At the moment, savers and investors in the stock market are both winning with the jump in interest rates, which have accompanied stronger-than-expected growth (good for corporate earnings) and sticky inflation. To wit: the S&P 500 and Nasdaq are within a whisker of their record highs reached earlier this year and a relatively risk-free 5.00% yield provides a real return.
What happens, then, when interest rates go down? A lot depends on why interest rates are going down, but in general lower rates bode well for the stock market and not as much for savers trying to stay ahead of inflation.
Some people, though, are working to ensure they can get a return of their capital as opposed to a return on their capital. Those people are in wealth preservation mode, either because they have made a ton of money already and don't want to lose it, or perhaps because they are on a fixed budget and are content earning a lower real rate of return so long as they don't lose money or purchasing power. There are myriad reasons why. These are just two simple explanations.
The real return on money market mutual funds isn't exactly a showstopper. Let's call it approximately 1.5% versus approximately 6.0% for the S&P 500. Which is the better investment? The answer seems clear, but it really isn't, because risk tolerances and objectives need to be taken into account.
The key takeaway, though, is that savers have a savings option now that they were largely robbed of between 2007 and 2022. Given that, they are unlikely to be cheering the prospect of lower rates like the stock market is, because they will be forced to take on more risk to outrun inflation.
That will presumably be a good trade-off for the stock market, which will be a beneficiary of asset flows away from lower-yielding investments.
-- Patrick J. O'Hare, Briefing.com
dLocal Limited sinks toward all-time lows as several headwinds from Q1 clipped profitability (DLO)
dLocal Limited (DLO -24%) plummets toward all-time lows today despite recording healthy total payment volume (TPV) growth in Q1, as it failed to drive any meaningful gross profit growth, resulting in adjusted EBITDA compression. DLO, a payment processor focused on emerging markets across Latin America, Asia, and Africa, started the year strong, boasting nearly +50% TPV growth from multiple verticals and an almost tripling of all its e-commerce business.
However, things turned south quickly as the quarter progressed. DLO fell short of adjusted EPS and revenue expectations, posting $0.06 and $184.4 mln, or 34.3% growth yr/yr, respectively. Worse yet, DLO's gross profits of $63.0 mln expanded by just 2% yr/yr, significantly underperforming analyst expectations, while adjusted EBITDA tumbled by 19% to $45.5 mln.
These weak points put DLO in a tough position to achieve its previously outlined gross profit and adjusted EBITDA forecasts of $320-360 mln and $220-260 mln, respectively. DLO mentioned that it is still on track to meet these targets, albeit now closer to the lower end of their ranges.
- What happened? For one, a prominent merchant renegotiated its fees as their contract came up for renewal, moving into a new level in DLO's tiered pricing scheme. DLO's top ten merchants comprise a decent chunk of its overall revenue, making the new pricing scheme materially hurt its top line in Q1.
- Secondly, merchants shifted toward products carrying lower monetization payout volumes to better align with a seasonally soft e-commerce and advertising market. It also did not help that DLO's merchants delayed a few crucial new launches scheduled in the quarter, leading to the company slowing anticipated volume ramp-ups that would have likely countered the seasonal weakness.
- The third factor, and perhaps most frustrating to investors, is that despite the headwinds in the quarter, DLO did not reduce its planned investment increases. The company's decision to keep its foot on the gas even at current gross profit levels reminds us of South East Asian e-commerce giant Sea Limited (SE), which quickly pivoted back to growth over profitability to maintain a competitive position. DLO is amid a similar dynamic and anticipates that gross profit will eventually rebound, proving its move correct in the long run.
It was not all doom and gloom. DLO noticed an improving trend in March, with gross profits in the month above Q4 levels. Furthermore, DLO's cross-border businesses returned to sequential growth, climbing by 9% to reach a record $2.4 bln in TPV in Q1. Cross-border remains at the core of DLO's business, making a return to sequential growth an encouraging indicator. Also worth noting was that DLO announced a new $200 mln repurchase program, underpinning confidence in the future potential of its business framework.
While these silver linings are mildly uplifting, they are doing little to reassure investors that a disappointing Q1 was a one-off quarter, especially given DLO's past setbacks, which it viewed as temporary.
Monday.com returns to prior form with strong beat-and-raise report as price increases kick in (MNDY)
After a rare disappointing quarterly report in February in which Monday.com (MNDY) issued Q1 and FY24 revenue guidance that was merely inline with expectations, the work management platform provider bounced back in a big way today. The company returned to its more typical form, delivering an impressive beat-and-raise Q1 earnings report amid a challenging IT spending environment that's still characterized by elongated sales cycles and heightened deal scrutiny.
- For the first time in MNDY's history, the company rolled out product-wide price increases to its existing customer base during the quarter. During the Q4 earnings call, the company estimated that the price adjustments would contribute about $15-$20 mln in revenue for FY24, but it now appears that its initial forecast was too conservative. In the Q1 earnings press release, CFO Eliran Glazer stated that the impact from the recent price changes have exceeded the company's expectations so far.
- Additionally, MNDY is seeing strong demand for a couple of its newer products: Monday Sales CRM and Monday Dev, each of which experienced accelerating account additions in Q1. Launched about one year ago, Monday Dev enables software development teams to easily collaborate with other departments within the company, while Monday Sales CRM consolidates all facets of the sales cycle into one centralized place.
- The launch of these two products comes on the heels of the successful rollout of mondayDB last year. In 3Q23, the company began the initial release of mondayDB 1.1, the second phase of its new infrastructure for the Work OS platform, which improves the speed of large dashboards. In turn, this allows MNDY to run larger applications on its platform, creating the opportunity to win larger installments and different use cases.
- Altogether, these catalysts helped push revenue higher by 34% in Q1 with MNDY forecasting strong revenue growth of 29% in Q2, based on the midpoint of its guidance. Even after the price increases, MNDY's paid customer count is growing at a fast clip. In Q1, the number of paid customers with 10+ users grew by 18% to 55,515, while the number of paid customers with more than $50,000 in ARR jumped by 48% to 2,491.
- Perhaps best of all, the company's profits and cash flow are growing at an even faster rate. Non-GAAP EPS surged by 336% yr/yr to $0.61 and free cash flow increased by 132% yr/yr to $89.9 mln.
Overall, MNDY turned in very strong results with a bullish outlook, bucking the slowing IT spending trend that has afflicted many other software and tech companies.
Nextracker is shining brightly following strong MarQ upside results (NXT)
Nextracker (NXT +10%) is shining bright today after wrapping up FY24 on a sunny note. This provider of solar tracker systems for utility-scale solar installations reported a huge Q4 (Mar) EPS beat. Revenue jumped 42.1% yr/yr to $736.5 mln, well ahead of analyst expectations. The mid-point of the FY25 EPS guidance was a bit below expectations, but we think investors are interpreting this as conservative guidance.
- While some other solar names (ENPH, SEDG) have struggled with earnings/guidance recently, Nextracker has reported double-digit EPS beats in each of the past four quarters. In fairness, this company is a bit different. Its products focus on enabling solar panels power plants to follow the sun's movement across the sky in order to optimize plant performance, whereas the other companies focus more on residential solar panels.
- Nextracker reported its highest-ever yr/yr revenue growth since its IPO debut in February 2023 at +42%. NXT posted strong 27% growth in the US market but huge 89% growth in the rest of the world. Q4's revenue mix was 67% US and 33% rest of world. Adjusted EBITDA surged 120% yr/yr to $160 mln with a 22% margin, up nearly 800 basis points yr/yr.
- Its backlog at the end of FY24 was a new record of over $4 bln and has more than tripled in just two years. Expanding its global supply chain footprint has been instrumental to scaling the business. NXT now has 80+ major suppliers across five continents. NXT also achieved record bookings internationally for the year, including sizable customer contracts in India, Australia, Europe and Brazil. In FY24, NXT booked its largest European project.
- NXT explains that trackers are the backbone of any solar power system that needs to deliver energy for 30+ years even in difficult weather. NXT says there has been a continued flight to quality, even as pricing continues to be competitive. The company strongly believes that it offers the highest quality and most reliable product on the market with the lowest installed cost.
- As the solar industry continues scaling, costs have dramatically decreased. However, NXT believes this is a healthy dynamic. Solar is now the most installed form of new power generation with a lot of growth opportunity considering that solar is less than 5% of all global electricity generation. Furthermore, NXT said that solar dwarfs queue positions for natural gas by an astounding 25x and there are zero new nuclear or coal plants in the queue. The US EIA forecasts solar to be the fastest growing energy technology, becoming the number one energy source within a decade.
Overall, this was a fantastic way to wrap up its first fiscal year as a public company. The company continues to report robust results and sports a huge backlog, which bodes well heading into FY25. We think there was some caution heading into this report given the recent trading action. That helps to explain the outsized reaction we are seeing today.
Dynatrace edges higher on upbeat MarQ numbers; weak FY25 guidance still a concern (DT)
Dynatrace (DT) observes a modest push higher today after exceeding its adjusted EPS and sales forecasts in Q4 (Mar) and announcing a new $500 mln repurchase program (around 4% of its market cap), its first buyback plan since going public in 2019. The security and observability software provider, allowing organizations to map and monitor applications and IT infrastructure, dealt with multiple months of sideways trading following a roughly 20% correction from one-year highs kickstarted by concerning Q3 (Dec) earnings in early February. Given this background, DT was up against less stringent expectations, paving the way for its highlights to greatly outweigh its rough patches.
Speaking of which, DT did project FY25 (Mar) numbers below consensus, targeting EPS of $1.26-1.29 and revs of $1.64-1.66 bln, or approximately 6% and 15% yr/yr growth, respectively, each representing meaningful slowdowns from FY24. Likewise, DT expects annualized recurring revenue (ARR) growth to decelerate to +15-16% in FY25. Management stayed conservative due to several large strategic deals it has been closing and continues to target. These larger deals are expected to be a material contributor to longer-term growth. However, in the interim, they are accompanied by increased variability, prompting DT to push back its $100 mln ARR target from the end of FY25 to sometime during FY26.
Nevertheless, like last quarter, the demand environment remained healthy, and DT's pipeline continued to outpace ARR growth. At the same time, investors are encouraged by DT's fortified position to capture a trend of vendor consolidation, leading to more strategic deals over the long term.
- DT's headline results in Q4 (Mar) were the attention-grabber, delivering adjusted EPS of $0.30, surpassing its $0.26-0.28 estimate, and revs of $380.8 mln, a 21.1% improvement yr/yr, nicely above its $372-377 mln prediction. Additionally, ARR increased by 21%, 100 bps higher than DT expected, to $1.5 bln.
- The leading factor behind DT's buoyant Q4 results was the aforementioned vendor consolidation, triggering much larger strategic deal sizes than in the past. DT closed 168 new logos in the quarter, ending with nearly 700 for the year, which is steady compared to the company's new customer acquisition in FY23. Meanwhile, DT closed a record 18 deals above $1.0 mln in annual contract value (ACV) in Q4, including its first-ever nine-figure total contract value deal.
- Underscoring DT's competitive advantage, its gross retention rate remained in the mid-90s. Furthermore, management remarked that once it inks a deal with a customer, they are quick to expand usage, illuminated by the average ARR per customer steadily increasing to $400K in Q4.
DT's Q4 results were solid and signaled little to no changes in the macroeconomic picture from last quarter. With shares of DT stuck in consolidation over the past three months, this was enough to spark renewed buying interest. However, DT's weak FY25 guidance should not be overlooked. The company continues to observe ongoing budget scrutiny and elongated sales cycles, which it anticipates will persist throughout the year. As a result, the stock may struggle to return to 2024 highs over the near future.
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