Market Snapshot
| Dow | 38711.29 | +140.26 | (0.36%) | | Nasdaq | 16857.06 | +28.38 | (0.17%) | | SP 500 | 5291.34 | +7.94 | (0.15%) | | 10-yr Note | +26/32 | 4.34 |
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| | NYSE | Adv 1079 | Dec 1702 | Vol 915 mln | | Nasdaq | Adv 1481 | Dec 2779 | Vol 4.9 bln |
Industry Watch
| Strong: Consumer Staples, Real Estate, Health Care, Consumer Discretionary, Information Technology |
| | Weak: Energy, Materials, Financials, Industrials |
Moving the Market
-- Rebound action in mega cap stocks boosting major indices
-- Emerging worries about economic growth and earnings prospects contributing to underlying negative bias
-- Drop in market rates and oil prices related to slowdown concerns
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Closing Summary
04-Jun-24 16:25 ET
Dow +140.26 at 38711.29, Nasdaq +28.38 at 16857.06, S&P +7.94 at 5291.34
[BRIEFING.COM] The major indices traded lower through most of the session, pressured by emerging concerns about growth. Mega cap stocks rebounded in the afternoon trade, however, leaving the indices near session highs. The S&P 500 and Nasdaq Composite each closed 0.2% higher and the Dow Jones Industrial Average rose 0.4%.
NVIDIA (NVDA 1164.37, +14.37, +1.3%) was a standout winner in the mega cap space, closing higher after Elon Musk indicated that NVDA purchases by Tesla (TSLA 174.77, -1.52, -0.9%) are expected to be $3-4 billion this year. Microsoft (MSFT 416.07, +2.55, +0.6%) and Apple (AAPL 194.35, +0.32, +0.2%) also contributed to the afternoon improvement. NVDA was down 0.8% at its low, MSFT was down 0.9% at its worst level, and AAPL showed a 0.5% decline earlier.
The market was showing nice resilience to selling efforts before the rebound action in mega cap stocks, which also acted as support for the afternoon rally. The S&P 500 was down 0.5% at its low of the day.
Small cap stocks underperformed their larger peers through the entire session, though. The Russell 2000 declined 1.3% today, clipped by slowdown worries and weakness in energy, materials, and bank stocks.
Losses in the aforementioned areas also led the S&P 500 materials (-1.2%), energy (-1.0%), and financials (-0.4%) sectors to underperform the index, logging the steepest declines among the 11 sectors. Meanwhile, the real estate (+1.0%), consumer staples (+0.9%), and information technology (+0.4%) sectors led the pack.
Treasury yields are lower again today in response to this morning's data, which showed a decrease in April job openings to 8.059 million from a revised 8.355 million (from 8.488 million) in March. The 10-yr note yield settled seven basis points lower at 4.34% and the 2-yr note yield fell five basis points to 4.77%.
- Nasdaq Composite: +12.3% YTD
- S&P 500:+10.9% YTD
- S&P Midcap 400: +5.0% YTD
- Dow Jones Industrial Average: +2.7% YTD
- Russell 2000: +0.3% YTD
Reviewing today's economic data:
- April Factory Orders 0.7% (Briefing.com consensus 0.6%); Prior was revised to 0.7% from 1.6%
- The key takeaway from the report is that business spending rebounded modestly to start the second quarter following a decline in March.
- April JOLTS - Job Openings 8.059 mln; Prior was revised to 8.355 mln from 8.488 mln
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -5.7%)
- 8:15 ET: May ADP Employment Change (Briefing.com consensus 175,000; prior 192,000)
- 9:45 ET: Final May S&P Global U.S. Services PMI (prior 51.3)
- 10:00 ET: May ISM Non-Manufacturing Index (Briefing. com consensus 50.7%; prior 49.4%)
- 10:30 ET: Weekly crude oil inventories (prior -4.16 mln)
Stocks sink after S&P 500 stops short of 5,300
04-Jun-24 15:30 ET
Dow +78.56 at 38649.59, Nasdaq -5.40 at 16823.28, S&P -0.48 at 5282.92
[BRIEFING.COM] The S&P 500 stopped short of 5,300 in its rebound bid, which invited selling activity. The major indices all pulled back from session highs in recent action.
Hewlett Packard Enterprise (HPE), PVH (PVH), CrowdStrike (CRWD), and others report earnings after the close today. Dollar Tree (DLTR), United Natural Foods (UNFI), Thor Industries (THO), Campbell Soup (CPB), Brown-Forman (BF.B), and others report earnings head of Wednesday's open.
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -5.7%)
- 8:15 ET: May ADP Employment Change (Briefing.com consensus 175,000; prior 192,000)
- 9:45 ET: Final May S&P Global U.S. Services PMI (prior 51.3)
- 10:00 ET: May ISM Non-Manufacturing Index (Briefing. com consensus 50.7%; prior 49.4%)
- 10:30 ET: Weekly crude oil inventories (prior -4.16 mln)
Mega cap rebound boosts major indices
04-Jun-24 15:00 ET
Dow +150.71 at 38721.74, Nasdaq +30.85 at 16859.53, S&P +7.13 at 5290.53
[BRIEFING.COM] The major indices trade near session highs, propelled by rebound action in the mega cap space.
NVIDIA (NVDA 1163.22, +13.10, +1.1%) is a standout in that respect, trading higher after Elon Musk indicated that NVDA purchases by Tesla (TSLA 177.09, +0.79, +0.5%) are expected to be $3-4 billion this year.
Other heavily-weighted names like Microsoft (MSFT 414.51, +0.99, +0.2%) and Apple (AAPL 194.67, +0.63, +0.3%) also recovered from early losses, boosting index gains. The Vanguard Mega Cap Growth ETF (MGK) is trading 0.4% higher.
Freeport-McMoRan dips on copper price declines; Carnival atop S&P 500 on strategic Australian move
04-Jun-24 14:30 ET
Dow +184.54 at 38755.57, Nasdaq +42.58 at 16871.26, S&P +10.09 at 5293.49
[BRIEFING.COM] The market has propped up a bit in the last half hour, all three major averages now in the green. The S&P 500 (+0.19%) is at HoDs, but in third place as more aggressive gains are had elsewhere.
Elsewhere, S&P 500 constituents Freeport-McMoRan (FCX 49.10, -2.94, -5.65%), GE Vernova (GEV 162.87, -7.50, -4.40%), and Paramount Global (PARA 12.30, -0.50, -3.91%) dot the bottom of the standings. FCX underperforms alongside copper peers as the underlying commodity (-2.5% copper) sinks lower, GEV continues to fade off recent highs, and PARA unwinds as investors clamor over reports of what management will do in relation to the ongoing bidding war for the company at its upcoming annual meeting.
Meanwhile, Carnival (CCL 16.86, +0.85, +5.31%) is today's top performer after news that in March 2025 the company would sunset the P&O Cruises Australia brand and fold the Australia operations into Carnival Cruise Line.
Gold lower on Tuesday
04-Jun-24 14:00 ET
Dow +78.67 at 38649.70, Nasdaq -36.94 at 16791.74, S&P -7.94 at 5275.46
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.22%) is in last place with about two hours to go on Tuesday afternoon.
Gold futures settled $21.90 lower (-0.9%) to $2,347.40/oz, down but off today's lows as the dollar has retreated off initial gains following this morning's JOLTS data.
Designer Brands not in style after missing Q1 EPS estimates as investors await turnaround (DBI)
Heading into Designer Brands' (DBI) Q1 earnings report, hopes were high that the footwear maker and retailer would deliver significantly improved results as it continues to execute a turnaround plan for its struggling DSW banner. This optimism, which was reflected in the stock's 17% surge last Thursday and Friday, was at least partly based on the strong results and outlooks from other footwear companies over the past few weeks, including Deckers (DECK), Shoe Carnival (SCVL), and Skechers (SKX).
- Although DBI did return to growth this quarter, generating modest sales growth of 0.6%, the company's performance didn't quite stack up to some of its closest peers. For instance, DBI fell short of EPS expectations, while each of the three competitors mentioned above beat expectations, with DECK and SKX crushing estimates. DBI's operating expenses increased by 8%, meaningfully outpacing its sales growth, and factoring into its earnings miss.
- Weak results in the U.S. retail business, which mainly includes DSW, have cast an overhang on the company and its stock. Accordingly, improving DSW's results has been a priority for DBI's executive team, but investors are seemingly disappointed so far with the progress.
- In Q1, U.S. retail sales were up 1.4% yr/yr, but comps were down 2.3%. It's worth pointing out, though, that U.S. retail comps declined by nearly 10% last quarter, so the company is moving in the right direction. The comp improvement is tied to changes in DSW's product assortment, which now leans more heavily on the athletic and casual categories.
- Athletic in particular was strong, up 15%, driving athletic penetration of total DSW sales higher by 460 bps yr/yr to 30%.
- This strength in the athletic category also has DBI excited about the back-to-school shopping season which begins towards the end of Q2.
- Turning to the Brands portfolio segment, sales increased by 12% with strong results from Keds, Hush Puppies, and Jessica Simpson, which delivered a double-digit positive comp. While DBI is focused on returning the U.S. retail business to growth, its efforts on the Brands side focus on improving profitability.
- To do so, the company is looking to reduce costs by rightsizing the organization, and it's aiming to expand margins. On that note, company-wide gross margin improved by 80 bps yr/yr to 32.8%, mainly due to fresher inventory levels, resulting in fewer promotional sales.
Despite these improvements, DBI only reaffirmed its FY25 EPS, sales, and comp guidance. In addition to the EPS miss, the fact that DBI didn't improve its outlook is creating plenty of disappointment today as investors await a more convincing turnaround at DSW.
Donaldson posts beat-and-raise report, driven by strength in aerospace and end of destocking (DCI)
Donaldson (DCI), a maker of air and liquid filtration products, launched to all-time highs after reporting a strong beat-and-raise Q3 earnings report that featured record sales and earnings for the quarter. The company, which serves a diverse range of markets, including aerospace, defense, automotive, food and beverage, and disk drive manufacturers, had been contending with destocking-related headwinds across a portion of its customer base. However, that issue is now in the rearview mirror as each of DCI's segments -- Mobile Solutions, Industrial Solutions, and Life Sciences --generated yr/yr sales growth.
- The destocking situation was most prevalent in the Mobile Solutions segment, particularly among automotive aftermarket customers. In Q3, though, aftermarket sales increased by 10.9% driven by market share gains and destocking in the year-earlier period, pushing Mobile Solutions total sales higher by 5.5% to $585.2 mln.
- Those market share gains are being bolstered by new and expanding relationships with part distributors, such as NAPA Auto Parts, which offers DCI's heavy-duty filtration products through its extensive network.
- There are still some pockets of weakness in Mobile Solutions. For instance, DCI is seeing weaker conditions in the agricultural end market, and in China's construction end market, especially in first-fit filtration (as opposed to aftermarket) applications. Accordingly, the company is forecasting off-road sales and on-road sales to decrease by low double-digits and low single-digits, respectively, in FY24.
- Turning to Industrial Solutions, where sales increased by 2.9% to $269.1 mln, ongoing strength in aerospace and defense are providing a major lift. Similar to other industrial companies, such as GE Aerospace (GEV) and Honeywell (HON), robust demand for aircraft components and services amid a boom in travel demand is providing DCI with a potent growth driver.
- On that note, for FY24, the company expects Industrial Solutions sales to grow by 6-8%, mainly driven by healthy market conditions in aerospace and defense.
- While DCI may not be the first name that investors think of when considering data center and cloud computing names, the company's Life Sciences segment does have some exposure there. Due to strengthening data center and cloud computing demand, sales to the disk drive end market are rebounding, helping to fuel a 24.2% jump in revenue for Life Sciences to $73.6 mln.
- Alongside the improving business conditions across most of DCI's markets, the company's focus on enhancing its profitability also played a role in its strong Q3 performance. These efforts include refining its supply chain, effectively managing its costs, and optimizing its prices. As a result of those actions, gross margin expanded by 260 bps yr/yr to 35.6%, while EPS increased by 21.7% to $0.92.
The main takeaway is that the inventory correction that plagued DCI's Mobile Solutions segment has run its course, enabling its growth rates to return to more normalized levels. Meanwhile, the strength in the aerospace and defense markets is also showing no signs of letting up.
Bath & Body Works encounters profit-taking after rough patches in Q1 dwarf positives (BBWI)
After the market quickly brushed off downbeat guidance last quarter, pushing shares of Bath & Body Works (BBWI -11%) over +70% higher since November, the bath soap retailer's Q1 (Apr) results were up against lofty expectations. BBWI did record beats on its top and bottom lines in the quarter. However, BBWI's Q2 earnings guidance was lighter than expected, causing its FY25 outlook to begin appearing slightly flimsier.
Meanwhile, BBWI bumped up its worst-case FY25 revenue scenario by a tiny amount while keeping its best-case scenario of flat growth unchanged despite the top-line outperformance in Q1. Given the heightened uncertainty surrounding discretionary spending, BBWI's guidance does not convey a strong conviction in the macroeconomic backdrop, fueling today's profit-taking.
- BBWI's headline numbers in Q1 were relatively pleasing, delivering adjusted EPS of $0.38, a 15% improvement yr/yr and nicely above its $0.28-0.33 projection, on a milder revenue decline than the company's negative 2.0-4.5% forecast at -0.9% yr/yr to $1.38 bln. Brand newness helped support BBWI's Q1 performance, as did an increase in overall transactions.
- However, BBWI warned that customers continued to manage their spending carefully, keeping pressure on average basket size. Average unit retails compressed by 1% yr/yr, worse than BBWI's flat prediction. The company launched promotions to help drive traffic after it noticed its products on store shelves were not resonating with customers.
- Internationally, BBWI's sales were hindered by ongoing softness and the war in the Middle East. Over a longer timeframe, BBWI noted that international markets remain attractive, keeping it committed to expanding beyond North America.
- The setback BBWI endured during the front end of Q1 crept into its Q2 guidance, projecting EPS of $0.31-0.36, a minor sequential decline. However, management was confident it was on track with building toward its anticipated return to positive sales growth during the second half of the year, starting with a decent Q2 forecast of negative 2% to flat growth yr/yr, the midpoint of which was above analyst expectations.
- For the full year, BBWI raised the low ends of its earnings and revenue forecasts, projecting EPS of $3.05-3.35 from $3.00-3.35 and negative 2.5% to flat sales growth from negative 3.0% to flat.
BBWI's Q1 report was decent but contained a few too many underlying issues to keep buyers in control of a stock that had already moved considerably higher over the past six months. There are two primary competitive edges BBWI must focus on to achieve its FY25 outlook: brand and loyalty. The Bath & Body Works banner resonates with customers, and management has started observing improving demand trends aided by its marketing approach to bring about better brand awareness. Loyalty is tied into this. BBWI's loyalty program has continued to expand, adding 18% additional members yr/yr in Q1. While near-term pressures could dampen demand, as long as BBWI continues to make strides to keep its brands at the forefront of consumers' minds and bolster its membership rates, it is poised for long-term growth.
Science Applications takes out 2024 lows as organic growth becomes more 2H25-weighted (SAIC)
Investors apply significant selling pressure to Science Applications (SAIC -10%) today despite the U.S. government IT services provider delivering Q1 (Apr) results consistent with analyst forecasts while reiterating its FY25 (Jan) guidance. SAIC was steadily recovering from a dismal Q4 (Jan), moving over 17% higher from lows on March 18. However, in-line Q1 results were not what the market was looking for, especially given the encouraging trends that unfolded last quarter.
- SAIC posted Q1 adjusted EPS of $1.92 on a top-line contraction of 8.8% yr/yr to $1.85 bln. Organic growth inched just 0.4% higher yr/yr, a sharp slowdown from the +7.4% jump last quarter and below SAIC's FY25 forecast of +2-4%. The meaningful pullback in organic growth in Q1 explains much of today's adverse reaction, as it places significant weight on the back half of the year. Management remarked that organic growth will remain flattish around the front half of FY25, ramping up to mid-single-digit growth toward 2H25.
- SAIC's organic growth cadence for the year shifted toward being more back-half-weighted as the material sales SAIC anticipated would manifest in Q2 move into Q3. Still, headwinds from recompete losses and benefits from contract growth give SAIC confidence it can achieve an organic growth rate similar to what it outlined last quarter, albeit more back-end loaded than it initially expected.
- While not showing up in today's price action, SAIC delivered notable quarter highlights. The company submitted proposals with a total contract value (TCV) of over $8.0 bln, which, combined with its in-line performance in Q1, keeps it on track to its targeted value of $22.0 bln worth of submission in FY25, a solid uptick from the $17 bln in FY24. At the same time, two-thirds of what SAIC expects to submit this year is new business.
- SAIC is also confident that its growth strategy outlined in April will produce meaningful shareholder returns in FY26 and FY27, including revenue of $7.95-8.10 bln by FY27, an 8% improvement from its prediction for FY25. SAIC is focused on five specific government imperatives: domain warfighting, the space citizen experience, the border, and underwater dominance. The company is shifting its portfolio to ensure it is the perfect fit to capture the opportunities presented by these longer-term government initiatives.
After bucking the broader market sell-off in 2022, gaining over +30%, only to sustain that momentum throughout 2023 and the first couple months of 2024, SAIC has been running into some turbulence lately. The company has historically toppled earnings expectations consistently each quarter, making last quarter's miss shocking. However, by steadily recovering since, investors expressed optimism that perhaps it was just a one-off miss, especially given the accelerating growth SAIC enjoyed in Q4. Therefore, by delivering Q1 numbers merely in line with analyst estimates while relying more heavily on a robust second half of the year regarding organic growth, investors are worried that the trends seen in Q4 may be a more troubling sign of structural weakness rather than a minor hiccup.
Autodesk jumps after completing its audit investigation and issuing upbeat guidance (ADSK)
Autodesk (ADSK +6%) completes its ongoing audit investigation, resulting in no restatement or adjustment of any of its previous financial statements, providing quite a bit of relief among investors today. The architecture and construction software developer announced in early April that it would perform an internal investigation surrounding its free cash flow and non-GAAP operating margin procedures, prompting a sharp sell-off that culminated in a more than 30% correction from multi-year highs reached on March 1 following upbeat Q4 (Jan) results. Coinciding with the completion of ADSK's audit was uplifting near-term guidance, projecting Q1 (Apr) and Q2 (Jul) numbers ahead of consensus. Meanwhile, the company also bumped up its FY25 adjusted EPS forecast and reiterated its FY25 revenue and billings targets. ADSK also announced a new CFO, replacing former CFO Deborah Clifford, who transitioned to Chief Strategy Officer.
With the internal audit behind it, ADSK is working to formally issue its Q1 results and hold a conference call, which could alleviate further investor angst. However, given the magnitude of ADSK's sell-off over the past two months, the company has significant ground to make up, which could be tricky given it remains in a shift to billing multi-year customers on an annual contract basis instead of an upfront basis. At the same time, macroeconomic trends remain uncertain.
Nevertheless, several positive indicators could sustain today's buoyant momentum.
- Most of ADSK's revenue stems from architectural, engineering, and construction (AEC) end markets. Therefore, healthy demand across the AEC industry is crucial for ADSK to sustain today's momentum. On that note, companies exposed to the construction industry have had positive remarks, including Steel Dynamics (STLD), which is optimistic about additional construction spending this year and throughout 2025 due to the Inflation Reduction Act programs. Similarly, Fluor's (FLR) pipeline through the end of 2025 represents a total installed cost of 14 times the size of its current backlog of $32.7 bln.
- However, favorable construction demand is only half the battle for ADSK as it still needs to sell its software to an industry that can be hesitant to transition from legacy software. While businesses are steadily moving toward the cloud, there are sections of the global economy where ADSK remains underpenetrated, such as the U.S. public sector. ADSK commented in March that it is working to capitalize on the federal government's incentives for the Federal and State Departments of Transportation to become more digital and shift their work to the cloud.
- Penetrating new markets and expanding within existing ones still depends on customers becoming familiar with ADSK's software. ADSK's training camps can assist in attracting more businesses toward its offerings. The compelling factor of ADSK's software is that it is costly to switch off, as it would involve learning a competitor's software as well as shifting existing workflows to their system.
Bottom line, ADSK cleared many of the clouds hanging over its stock following the completion of its audit investigation. There are still uncertainties on the horizon, especially given the high interest rate environment. However, as companies continue moving toward a more digital ecosystem, ADSK stands to benefit, keeping FY25 as a possible turning point for the company following several quarters of stagnant growth.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $104.07.
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