Market Snapshot
| Dow | 38686.32 | +574.84 | (1.51%) | | Nasdaq | 16735.03 | -2.06 | (-0.01%) | | SP 500 | 5277.51 | +42.03 | (0.80%) | | 10-yr Note | +4/32 | 4.51 |
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| | NYSE | Adv 2145 | Dec 614 | Vol 2.0 bln | | Nasdaq | Adv 2511 | Dec 1687 | Vol 6.7 bln |
Industry Watch
| Strong: Health Care, Energy, Real Estate, Utilities, Consumer Staples, Financials, Industrials |
| | Weak: Information Technology |
Moving the Market
-- Drop in market rates following the April Personal Income and Spending report, which didn't contain anything too surprising
-- Negative reaction to Dell's (DELL) earnings report keeps consolidation pressure on growth stocks
-- Reacting to other earnings news, garnering mixed responses from investors
-- Short-covering and month-end positioning activity
| Closing Summary
31-May-24 16:35 ET
Dow +574.84 at 38686.32, Nasdaq -2.06 at 16735.03, S&P +42.03 at 5277.51
[BRIEFING.COM] The major indices closed at or near session highs thanks to a surge of buying activity in the last 20 minutes of trading. This action was likely driven by short-covering and month-end positioning activity. Some mega cap names that recovered from losses had an outsized impact on index performance, but many stocks participated in the late climb.
Apple (AAPL 192.25, +0.96, +0.5%), which had been down as much as 0.7%, Microsoft (MSFT 415.13, +0.46, +0.1%), which was down as much as 2.5%, and Alphabet (GOOG 173.96, +0.40, +0.2%), which was down as much as 1.5% earlier, were among the standouts in that respect.
There was underlying positive bias through the entire session, though, which build up steam in the final moments of trading this month. The Invesco S&P 500 Equal Weight ETF (RSP) gained 1.3% and ten of the 11 S&P 500 sectors closed higher. Eight of the sectors logged gains greater than 1.0%.
The overall upside bias was followed the release of the April Personal Income and Spending Report this morning. The report was better than feared, but did not reflect any improvement in inflation. Treasury yields moved lower in response, which acted as support for the stock market.
The 10-yr note yield dropped four basis points today, and 18 basis points in May, to 4.51%. The 2-yr note yield settled four basis points lower today, and 16 basis points in May, at 4.89%.
Separately, growth stocks struggled to keep up today after Dell's (DELL 139.56, -30.36, -17.9%) disappointing earnings report.
- Nasdaq Composite: +11.5% YTD
- S&P 500:+10.6% YTD
- S&P Midcap 400: +7.2% YTD
- Dow Jones Industrial Average: +2.6% YTD
- Russell 2000: +2.1% YTD
Reviewing today's economic data:
- April Personal Income 0.3% (Briefing.com consensus 0.3%); Prior 0.5%; April Personal Spending 0.2% (Briefing.com consensus 0.3%); Prior was revised to 0.7% from 0.8%; April PCE Prices 0.3% (Briefing.com consensus 0.3%); Prior 0.3%; April PCE Prices - Core 0.2% (Briefing.com consensus 0.3%); Prior 0.3%
- The key takeaway from the report is that the year-over-year PCE inflation rates did not worsen; however, they did not improve either, so it seems unlikely that the Fed would find any new confidence in this report that inflation is moving sustainably toward its 2% target.
- May Chicago PMI 35.4 (Briefing.com consensus 41.0); Prior 37.9
Looking ahead, market participants will receive the following economic data on Monday:
- 9:45 ET: Final S&P Global U.S. Manufacturing PMI (prior 50.0)
- 10:00 ET: April Construction Spending (prior -0.2%) and May ISM Manufacturing Index (prior 49.2%)
Treasury yields settle lower today and this month
31-May-24 15:35 ET
Dow +281.56 at 38393.04, Nasdaq -144.56 at 16592.53, S&P -2.32 at 5233.16
[BRIEFING.COM] The S&P 500 is little changed from yesterday heading into the close.
The 10-yr note yield dropped four basis points today, and 18 basis points in May, to 4.51%. The 2-yr note yield settled four basis points lower today, and 16 basis points in May, at 4.89%.
Looking ahead, market participants will receive the following economic data on Monday:
- 9:45 ET: Final S&P Global U.S. Manufacturing PMI (prior 50.0)
- 10:00 ET: April Construction Spending (prior -0.2%) and May ISM Manufacturing Index (prior 49.2%)
Mega caps lag, broader market build up gains
31-May-24 15:05 ET
Dow +249.56 at 38361.04, Nasdaq -185.85 at 16551.24, S&P -11.88 at 5223.60
[BRIEFING.COM] The Dow Jones Industrial Average (+0.7%) hit a fresh session high in recent trading. The S&P 500 (-0.3%) and Nasdaq Composite (-1.2%) moved modestly higher, but still trade relatively close to session lows.
Many mega cap stocks are still acting as a drag on index-performance, but the broader market is building up strength. The Invesco S&P 500 Equal Weight ETF (RSP) is trading 0.4% higher.
NVIDIA (NVDA 1082.78, -22.55, -2.0%), Microsoft (MSFT 406.33, -8.30, -2.0%), and Amazon.com (AMZN 174.68, -4.64, -2.6%) are trading down more than 2.0%. Apple (AAPL 190.65, -0.64, -0.3%), Alphabet (GOOG 172.39, -1.13, -0.7%), and Meta Platforms (META 460.24, -6.80, -1.5%) are also showing solid losses.
Paycom falls after co-CEO resigns; Icahn builds stake in Caesars, stock jumps
31-May-24 14:30 ET
Dow +248.19 at 38359.67, Nasdaq -223.43 at 16513.66, S&P -19.62 at 5215.86
[BRIEFING.COM] The S&P 500 (-0.37%) is in second place among the major averages.
Elsewhere, S&P 500 constituents Paycom Software (PAYC 144.75, -14.20, -8.93%), Super Micro Computer (SMCI 769.98, -57.96, -7.00%), and Moderna (MRNA 141.27, -10.22, -6.75%) dot the bottom of the standings. PAYC slips after Christopher Thomas resigned as co-CEO and the company promoted Randy Peck to COO, while MRNA slides despite news out this morning that the FDA had approved the company's RSV vaccine, mRESVIA.
Meanwhile, Caesars Entertainment (CZR 35.53, +3.68, +11.55%) is atop the average after a Bloomberg report suggested C. Icahn had built a stake in the company.
Gold ends higher May on a down note
31-May-24 14:00 ET
Dow +226.23 at 38337.71, Nasdaq -209.02 at 16528.07, S&P -19.70 at 5215.78
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-1.25%) remains the worst-performing major average.
Gold futures settled $20.70 lower (-0.9%) to $2,334.50/oz, about -0.5% lower this week and +0.4% on the month.
Meanwhile, the U.S. Dollar Index -0.1% at $104.65.
Marvell investors were prepared for a weak Q1 but wanted a brighter outlook for Q2 (MRVL)
Marvell (MRVL -11%) is not looking so "Marvell-ous" after the semiconductor company reported Q1 (Apr) results last night. Marvell reported in-line Q1 results and guided in-line for Q2 (Jul). MRVL made it clear a few months ago that Q1 was going to be weak but it seemed more positive on Q2 and 2H24. As such, we think investors were writing Q1 off and hoping for more bullish guidance for Q2. Instead, Marvell still sounds cautious in some areas.
- Data Center, which is Marvell's largest market at 70% of AprQ sales, segment revenue jumped 87% yr/yr and 7% sequentially to $816.4 mln, a bit above prior guidance of low single digit growth sequentially. Strong revenue growth was driven by cloud AI as well as standard cloud infrastructure. In addition to strong contributions from electro-optics products, MRVL also said it benefited from initial shipments of its custom AI compute programs. For Q2, MRVL expects data center revenue to grow in the mid-single digits sequentially as its custom AI silicon continues ramping.
- Marvell said it continues to see a massive opportunity ahead with the data center TAM expected to grow from $21 bln last year to $75 bln in calendar 2028. Marvell feels it has numerous opportunities across compute, interconnect, switching and storage. As a result, it expects to double market share over the next several years from approximately 10% share last fiscal year.
- Turning to its Carrier and Enterprise end markets, as expected, Q1 reflected a period of inventory correction and soft industry demand. Enterprise networking revenue fell 58% yr/yr and 42% sequentially to $153.1 mln while Carrier revs fell 75% yr/yr and 58% sequentially to just $71.8 mln. This was below Marvell's prior guidance of sequential declines: EN -40% and Carrier -50%.
- Marvell does expect these segments to reach a bottom in the first half of this fiscal year, with both segments expected to see sequentially flat revs in Q2. Marvell is encouraged by recent comments from its EN customers that their order patterns are stabilizing and that they expect their end customers' inventory to start to normalize. As a result, Marvell expects to start a recovery in 2H as it begins shipping closer to end market demand. In Carrier, MRVL says overall demand remains subdued.
- Consumer segment revenue fell 70% yr/yr and 71% sequentially to $42 mln, which was in-line with prior guidance. Q1 reflected the completion of deliveries for an end-of-life program in the prior quarter. MRVL expects Q2 consumer segment revs to approximately double on a sequential basis. Finally, Automotive/Industrial segment revs fell 13% yr/yr and 6% sequentially to $77.6 mln, reflective of a broad inventory correction taking place across the automotive end market, which is expected to take some time to fully resolve. As a result, Auto/Industrial Q2 revs should be flat sequentially with growth to resume in 2H.
To break it all down, the only segment performing well for Marvell is Data Center. Everything else sounds pretty weak. The good news is that DC is huge, accounting for 70% of AprQ sales, and it's booming. So that is important. We think the stock is weak because investors likely expected a bit more optimism about Q2 after a rough Q1. On the last call, it sounded more like a Q1 problem but this call makes it sounds like a 1H problem. It sounds like noticeable improvement will have to wait until 2H.
MongoDB plunges as stable economic conditions reverse rapidly, denting FY25 guidance (MDB)
After already issuing downbeat FY25 (Jan) guidance last quarter, conditions only worsened for MongoDB (MDB -24%) in Q1 (Apr), spurring a lowered outlook for the year as the unstructured database management software provider contends with a deteriorating macroeconomic picture. As a result, investors are sending the stock down to one-year lows, an over -50% correction from 2024 highs reached in mid-February.
While several items are igniting today's dismal reaction, two developments in particular stand out. For one, after predicting two months ago that consumption growth in MDB's cloud offering Atlas would be stable this year, it now anticipates a slowdown. Secondly, MDB's pipeline of multi-year deals for the remainder of this year within its legacy Enterprise Advanced (EA) offering is lower than initially predicted, leading to non-Atlas revs to slide by a mid-single-digit percentage in FY25. The culmination of these new unfavorable trends was reduced FY25 guidance. MDB expects FY25 adjusted EPS of $2.15-2.30 and revs of $1.88-1.90 bln, down from $2.27-2.49 and $1.90-1.93 bln, respectively.
- What happened? Because consumers are charged for their usage of Atlas, MDB's quarterly numbers can turn on a dime. MDB encountered broad-based weakness within a short timeframe, affecting customers across tenure, industry, size, and geography, reflecting a challenging global economic environment. It also did not help that MDB got off to a sluggish pace surrounding acquiring new business.
- As such, while MDB was able to pick up the pieces as the quarter progressed, paving the way for another quarter of top and bottom-line upside, delivering adjusted EPS of $0.51 and revenue growth of 22.3% yr/yr to $450.56 mln, its troubles in Q1 are seeping into the rest of the year.
- On a more uplifting note, MDB remarked that its win and retention rates remained strong in Q1, underscoring the mission criticality of its platform. Once customers move to MDB's software, it is costly to switch to a competitor. Furthermore, with the dawn of AI, businesses are beginning to realize that modernizing legacy applications is becoming necessary for remaining competitive, a plus for MDB over the long term.
- MDB is also more optimistic about its opportunity to capitalize on an acceleration in legacy app modernization using AI. Given the costs involved in a business migrating from a legacy platform, this market segment can be tricky to penetrate. However, management is confident its offerings and investments will be compelling enough to begin nudging reluctant businesses.
- On that note, MDB signed Accenture (ACN) as its first global systems integrator to join its MongoDB AI Application Program (MAAP), which combines hyperscalers and Gen AI frameworks.
A rapidly changing economic backdrop was a shock, generating considerable selling pressure today. MDB's software still commands a competitive advantage as it tackles the issue of how to organize unstructured data. However, in the interim, as we saw from other tech software firms recently, including Salesforce (CRM) and UiPath (PATH), a measured buying climate is creating unavoidable problems that could keep MDB from mounting a rapid turnaround.
Costco a victim of its own success today as shares trade lower despite solid earnings report (COST)
Costco (COST) is looking like a victim of its own success this morning as its shares trade lower despite posting a solid top and bottom line beat in Q3. Investors have come to expect strong results from the membership warehouse leader, and those lofty expectations were ratcheted even higher following the company's impressive comparable sales reports for March and April. As such, the stock rallied by 13% in May, reaching record highs yesterday, setting the stage for today's sell-the-news reaction.
Perhaps COST's EPS beat wasn't quite as spectacular as some would like, but there is little else to complain about in terms of its performance.
- In the wake of those comparable sales reports for March (+7.5%) and April (+5.5%), it was essentially a given that COST's Q3 comp growth would also be healthy. Mostly driven by a 6.1% increase in store traffic, Q3 comparable sales increased by 6.5% on an adjusted basis. With inflation cooling off a bit, average ticket was up by just 0.5% worldwide.
- During the earnings call, which was different that those in the past since recently appointed CEO Ron Vachris led the call instead of former CFO Richard Galanti, Mr. Vachris noted that demand for discretionary products improved. During the Q2 earnings call, Mr. Galanti highlighted appliances as a source of strength, but this time, less expensive product categories also stood out, such as toys, tires, health and beauty, and lawn and garden.
- Although COST has new leadership in place with Mr. Vachris as CEO and Gary Millerchip taking over as CFO on March 15, the executive team isn't planning on any major strategic changes. However, one notable shift is that improving its digital capabilities and technology is a major focal point for COST. Specifically, the company is looking to improve its delivery times, add buy online, pick up in store capabilities, and make enhancements to its app and website. Also, recall that last quarter Mr. Galanti noted that the company rolled out a new mobile application home page on Apple's (AAPL) iOS.
- These initiatives seem to be paying dividends already as new app downloads surged by 32% to 35 mln, helping to push eCommerce comps higher by 20.7% in Q3. Similar to Q2, appliances were strong, and the momentum for gold bars and silver bullion continued.
Overall, COST demonstrated yet again why it's considered to be a premier name in the retail sector as it largely bucks the macroeconomic headwinds. The company still has a membership fee increase in its back pocket, too, which should also continue to support the stock.
Dell under pressure as it breaks its string of huge EPS beats; margins were main problem area (DELL)
Dell (DELL -22%) is under pressure today following its Q1 (Apr) earnings report last night. Following six consecutive large EPS beats, Dell surprised investors with just in-line EPS results last night. Revenue was a bright spot as it rose 6.3% yr/yr to $22.24 bln, which was better than expected. This marked Dell's return to yr/yr revenue growth after six consecutive yr/yr declines. Dell saw exceptional growth in servers and a return to growth in its commercial PC business.
- Margins appear to be the main problem in the quarter. That was particularly evident in the Q2 (Jul) guidance, which had upside revs but EPS guidance was well below analyst expectations. That combination usually means weak margins. The silver lining was that Dell raised FY25 EPS and revenue guidance, despite the lackluster Q1 EPS results and weak Q2 EPS guidance.
- Infrastructure Solutions Group (ISG) segment revenue jumped 22% yr/yr to $9.23 bln with 8.0% segment operating margin vs 9.7% last year. Server and networking revenue was a record $5.5 bln, up 42% yr/yr. Server demand was even stronger, with growth across both traditional and AI. AI-optimized server demand increased again sequentially as orders increased to $2.6 bln.
- What really stood out was that AI-optimized shipments were up more than 100% sequentially to $1.7 bln. Dell has now shipped more than $3 bln of AI servers over the last three quarters. Its AI server backlog is $3.8 bln, growing sequentially by $900 mln. Storage demand has stabilized with revs flat yr/yr at $3.76 bln.
- Turning to Client Solutions Group (CSG), segment revenue was flat yr/yr at $11.97 bln with 6.1% op margin vs 7.4% last year. Commercial revenue was $10.2 bln, up 3%, while consumer revenue was $1.8 bln, down 15%. Commercial PC demand has stabilized with demand improving as the quarter progressed. Dell expects commercial PCs to continue to improve as the year progresses.
- Dell also remains optimistic about the coming PC refresh cycle, driven by multiple factors: the PC install base continues to age, Windows 10 will reach end of life later next year, and the industry is making significant advancements in AI-enabled architectures and applications. Dell plans to continue to focus on commercial PCs and the high end of consumer and gaming.
- Margins were the main problem. Non-GAAP gross margin fell to 22.2% from 24.7% a year ago. Dell cited a more competitive pricing environment and a higher AI-optimized server mix. Non-GAAP operating margin declined to 6.6% from 7.6% last year. However, Dell expects operating margin to improve sequentially in Q2, driven by sequential growth in ISG and sequential growth and margin expansion in its storage business.
Overall, investors have gotten used to massive EPS beats with Dell, so this was a wake up call. Given strong demand for its AI-optimized servers and its collaboration with NVDA, investors have been bidding up Dell shares as an NVDA play. We think investor excitement about this business is warranted. However, when you take a step back, it is still a relatively small part of the overall business. Dell also sells traditional servers, networking, storage, commercial and consumer PCs etc. In terms of margins, we saw a pretty big compression in Q1 and you can see this impact on EPS. Also, Dell's comments about a more competitive pricing environment makes us a bit nervous about margins moving forward.
Ulta Beauty tries to maintain initial glow despite lowered FY25 guidance (ULTA)
Ulta Beauty (ULTA) tries to maintain its initial glow today -- opening nearly +9% higher -- despite issuing a gloomy FY25 (Jan) outlook, slashing its previous projections in the wake of a challenging macroeconomic backdrop and intensifying competitive pressures. The beauty retailer's warning last month that the beauty category was finally starting to succumb to the cumulative inflationary pressures it proved resilient to over the past few years grounded investor expectations ahead of ULTA's Q1 (Apr) report yesterday after the bell. Projecting low single-digit same-store sales growth in Q1 triggered a rush of selling, causing shares of ULTA to tumble by over 25% since April as of yesterday's close.
However, given this perspective, ULTA's lowered FY25 guidance was better than the market feared. The company projected EPS of $25.20-26.00, down a dollar from its previous outlook, revs of $11.5-11.6 bln, down $100 mln, and comp growth of +2-3%, down from +4-5%. At the same time, investors are encouraged by some promising developments from the quarter, increasing the likelihood that the worst of ULTA's headwinds will transpire this year.
- ULTA delivered Q1 EPS of $6.47, nicely ahead of consensus, on top-line growth of 3.5% yr/yr to $2.73 bln, consistent with analyst forecasts. Likewise, comps of +1.6% matched management's prediction, driven by traffic growth in stores and digital platforms and a 0.3% bump in average ticket.
- Breaking down comp performance by product category, makeup was the laggard in Q1, slipping by a mid-single-digit percentage. Conversely, all other categories enjoyed positive growth. Fragrance registered double-digit expansion, skincare was up by mid-single digits, haircare up a low single digit, and services, a notable standout over the past several quarters, grew comps in the high single digits.
- Based on ULTA's estimates, these results were sufficient to maintain overall market share, an uplifting development given how the strength of the beauty category and its attractive margins have drawn significant competitive pressures into the industry. However, ULTA's market share growth was uneven, giving up share in the prestige (higher-priced) category while capturing share in the mass (lower-priced) category.
- ULTA still expects growth within the broader beauty category this year, reiterating its mid-single-digit percentage outlook. However, the midpoint of ULTA's FY25 revenue forecast translates to just 3% growth yr/yr, signaling potentially minor market share loss. CFO Paula Oyibo remarked that although its initiatives -- strengthening its assortment, accelerating social relevance, and enhancing its digital experience -- should produce meaningful results, it maintains a conservative view toward the remainder of the year, partially dampening the mood today.
Bottom line, following many quarters of undeniable strength within the beauty industry, cracks have finally appeared, affecting prestige and mass products. While ULTA's Q1 report was better than the market feared, the year ahead may produce considerable turbulence for the beauty retailer as competition only intensifies while inflationary pressures linger.
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