| | | Market Snapshot
| Dow | 38886.17 | +78.84 | (0.20%) | | Nasdaq | 17173.12 | -14.78 | (-0.09%) | | SP 500 | 5352.96 | -1.07 | (-0.02%) | | 10-yr Note | 0/32 | 4.28 |
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| | NYSE | Adv 1289 | Dec 1452 | Vol 829 mln | | Nasdaq | Adv 1692 | Dec 2497 | Vol 4.9 bln |
Industry Watch
| Strong: Consumer Discretionary, Energy, Financials, Health Care, Consumer Staples, Utilities |
| | Weak: Utilities, Industrials, Information Technology |
Moving the Market
-- Not a lot of conviction with market near all-time highs
-- Mixed action mega cap stocks contributing to mixed feeling at index-level
-- Rising market rates acting as limiting factor for equities
-- Digesting this morning's economic data
| Closing Summary
06-Jun-24 16:20 ET
Dow +78.84 at 38886.17, Nasdaq -14.78 at 17173.12, S&P -1.07 at 5352.96
[BRIEFING.COM] The major indices closed either slightly above or slightly below yesterday's closing levels. The market-cap weighted S&P 500 closed about one point lower and the equal-weighted S&P 500 logged a 0.2% decline.
There was not a lot of conviction today following fresh all-time closing highs for the S&P 500 and Nasdaq Composite on Wednesday, and in front of Friday's release of the May Employment Report. The market continues to show nice resilience to selling efforts, though, which has acted as an upside driver in recent sessions.
Some stocks exhibited larger moves on specific catalysts. lululemon athletica (LULU 323.03, +14.76, +4.8%) and J.M. Smucker (SJM 115.37, +5.04, +4.6%) were standouts in that respect, jumping on pleasing earnings and/or guidance.
LULU and SJM were among the top performing S&P 500 components and contributed to the outperformance of their respective sectors. The consumer discretionary sector jumped 1.0% and the consumer staples sector logged a 0.4% gain.
NVIDIA (NVDA 1210.45, -13.95, -1.1%) dropped under some profit-taking pressure after its record close yesterday. This loss, along with declines in Apple (AAPL 194.50, -1.37, -0.7%), Broadcom (AVGO 1400.74, -12.34, -0.9%), and other semiconductor-related names, contributed to the weakness in the information technology sector (-0.5%).
Treasury yields settled little changed from yesterday following some volatile action in response to the first rate cut by the ECB since September 2019 and a mixed batch of economic data that included higher-than-expected initial jobless claims, a soothing downward revision to Q1 unit labor costs, and a widening in the April trade deficit.
The 10-yr note yield settle one basis point lower at 4.28% and the 2-yr note yield fell one basis point to 4.72%.
- Nasdaq Composite: +14.4% YTD
- S&P 500:+12.2% YTD
- S&P Midcap 400: +5.8% YTD
- Dow Jones Industrial Average: +3.2% YTD
- Russell 2000: +1.1% YTD
Reviewing today's economic data:
- Weekly Initial Claims 229K (Briefing.com consensus 216K); Prior was revised to 221K from 219K; Weekly Continuing Claims 1.792 mln; Prior was revised to 1.790 mln from 1.791 mln
- The key takeaway from the report is the uptick in initial jobless claims, which will be seen as a sign of some loosening in the labor market.
- Q1 Productivity-Rev. 0.2% (Briefing.com consensus 0.3%); Prior 0.3%; Q1 Unit Labor Costs-Rev. 4.0% (Briefing.com consensus 4.7%); Prior 4.7%
- The key takeaway from the report is the downward revision to unit labor costs. Although a backward-looking report (we're two-thirds done with Q2), that revision will take out some of the labor cost inflation sting seen in the advance report.
- April Trade Balance -$74.6 bln (Briefing.com consensus -$76.5 bln); Prior was revised to -$68.6 bln from -$69.4 bln
- The key takeaway from the report is that there was an uptick in both exports and imports in April, which is a reflection of increased global trade activity; however, with imports exceeding exports, that will create a drag on Q2 GDP.
Looking ahead, Friday's economic calendar features:
- 8:30 ET: May Nonfarm Payrolls (Briefing.com consensus 185,000; prior 175,000), Nonfarm Private Payrolls (Briefing.com consensus 168,000; prior 167,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.2%), Unemployment Rate (Briefing.com consensus 3.9%; prior 3.9%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)
- 10:00 ET: April Wholesale Inventories (Briefing.com consensus 0.2%; prior -0.4%)
- 15:00 ET: April Consumer Credit (Briefing.com consensus $11.0 bln; prior $6.3 bln)
Stocks move mostly sideways in front of close
06-Jun-24 15:30 ET
Dow +81.81 at 38889.14, Nasdaq -26.67 at 17161.25, S&P -3.21 at 5350.82
[BRIEFING.COM] The market moved mostly sideways over the last half hour.
Vail Resorts (MTN), DocuSign (DOCU), and others report earnings after the close.
Looking ahead, Friday's economic calendar features:
- 8:30 ET: May Nonfarm Payrolls (Briefing.com consensus 185,000; prior 175,000), Nonfarm Private Payrolls (Briefing.com consensus 168,000; prior 167,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.2%), Unemployment Rate (Briefing.com consensus 3.9%; prior 3.9%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)
- 10:00 ET: April Wholesale Inventories (Briefing.com consensus 0.2%; prior -0.4%)
- 15:00 ET: April Consumer Credit (Briefing.com consensus $11.0 bln; prior $6.3 bln)
Stocks bounce off session lows
06-Jun-24 15:05 ET
Dow +72.09 at 38879.42, Nasdaq -20.89 at 17167.03, S&P -2.78 at 5351.25
[BRIEFING.COM] The major indices bounced off session lows in recent action. The S&P 500 is near its prior close again.
Upside moves in the stock market coincided with Treasury yields moving slightly lower. The 10-yr note yield moved from 4.29% to 4.28%.
Some mega cap stocks moved higher also, providing a boost to index performance. The Vanguard Mega Cap Growth ETF (MGK) is 0.1% higher now.
Vistra Energy underperforms among S&P 500 peers as utilities slide
06-Jun-24 14:30 ET
Dow -14.42 at 38792.91, Nasdaq -38.43 at 17149.49, S&P -10.57 at 5343.46
[BRIEFING.COM] The S&P 500 (-0.20%) is in second place, all three major averages having taken a step lower over the last half hour.
Elsewhere, S&P 500 constituents Illumina (ILMN 116.99, +10.20, +9.55%), PayPal (PYPL 67.22, +3.69, +5.81%), and Expedia Group (EXPE 119.81, +4.45, +3.86%) dot the top of the standings despite a dearth of corporate news.
Meanwhile, Vistra Energy (VST 84.03, -7.97, -8.66%) is today's top laggard, underperforming alongside other utilities stocks.
Gold adds to weekly gains
06-Jun-24 14:00 ET
Dow +39.52 at 38846.85, Nasdaq -17.44 at 17170.48, S&P -4.58 at 5349.45
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (-0.10%) remains the worst-performing major average, down about 17 points.
Gold futures settled $15.40 higher (+0.6%) to $2,390.90/oz.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $104.12.
J.M. Smucker is jamming today following decent FY25 guidance; Hostess adding solid benefits (SJM)
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J.M Smucker (SJM +4%) is jamming today as investors cheer the consumer-packaged goods giant's wider Q4 (Apr) earnings beat compared to last quarter and decent FY25 guidance. While SJM did fall modestly short of revenue expectations in the quarter, given how badly the stock has been knocked down this year, falling nearly 20% from 2024 highs, investors are looking beyond this minor blemish. Instead, the market is expressing enthusiasm over the year ahead after SJM projected positive volume despite anticipated price hikes, and healthy sales growth.
- Beginning with SJM's main blemish from Q4, its total revenue contracted 1.3% yr/yr to $2.21 bln, ending the year with $8.18 bln, just short of its $8.22 bln forecast. Much of the decline was due to the divestiture of many of its pet food brands. When removing the impacts of acquisitions (including SJM's Hostess purchase) and divestitures, net sales climbed 3% higher in the quarter.
- Speaking of its $5.6 bln Hostess Brands acquisition from September, SJM anticipates the brand will add around 9 pts to its FY25 net sales growth. This is an uplifting development given how strongly investors rebuked the purchase, pushing shares markedly lower and kicking off a more than 20% correction over the span of a few weeks.
- The main drag on SJM's adjusted top line was its Retail Coffee business, its largest segment, comprising 30% of Q4 sales. Growth in this business slipped by 4%, weighed down equally by falling prices and volume, a troublesome combination. Manamagent mentioned that much of the softness it is seeing surrounds its coffee and peanut butter products (meaningful components of its overall business). Unfortunately, SJM does not expect much improvement in the year ahead, keeping a lid on its adjusted net sales growth projection.
- SJM anticipates FY25 revs to inch only around 1.5-2.5% higher yr/yr when excluding the positive impact of Hostess, which lifted the company's growth outlook to +9.5-10.5%. SJM's earnings outlook for FY25 was also somewhat on the lighter side, targeting EPS of $9.80-10.20, the midpoint of which missed analyst expectations. SJM's investments in its Uncrustables brand clipped $0.35 off its forecast, while recapture of the Hostess dilution should help offset this headwind.
- Still, SJM anticipates positive volume growth in the year ahead, sustaining positive momentum within its Pet Foods and International businesses. The company also expects its gross margins to hold around 38%.
SJM delivered a decent quarter filled with several encouraging works in the pipe. However, given how depressed its stock has been over the past year, today's reaction may make SJM's Q4 report appear more uplifting than it was beneath the surface. The company's product suite may not command as much brand power as some of its counterparts, such as General Mills (GIS) and Hershey's (HSY), as its primary products encompass peanut butter, coffee, and pre-made PB&J sandwiches. While Hostess adds variety to its portfolio, SJM may still find itself stuck in a bit of a rut over the near term, especially if inflationary pressures persist.
Ciena weak despite EPS upside; guidance weak as service provider recovery slows
Ciena (CIEN +2%) is heading higher today after it reported a solid EPS beat for Q2 (Apr) this morning. Revenue for the telecom equipment company fell 19.6% yr/yr to $910.8 mln, but that was nicely above analyst expectations. The one blemish on the quarter may be its Q3 (Jul) revenue guidance, which, at $880-960 mln, was below analyst expectations. Ciena also lowered full year guidance.
- It is important to understand that Ciena has two main types of customers: cloud companies and service providers. As a reminder, supply chain constraints led to elongated lead times. But then, a faster than anticipated improvement in lead times required some customers to digest the large amounts of equipment ordered in prior periods. Ciena's cloud customers have worked through this, but service provider customers have taken longer to work down this inventory.
- On the call this morning, Ciena explained that the service provider environment is improving. Very importantly, service provider inventory levels are starting to decline and service provider engagement and RFP activity levels are higher than in the past several quarters. This has resulted in several recent new wins and a growing pipeline.
- Despite the improvement on the SP side, Ciena is still seeing some caution related to macroeconomic concerns, particularly internationally. However, Ciena continues to believe these dynamics are temporary, and it's seeing some encouraging signs of recovery beginning to emerge, including with order volumes.
- From a broader view, Ciena notes that bandwidth demand remains strong and durable. Increasing cloud adoption and a growing number of AI use cases are accelerating global data generation. As a result, network traffic is increasing. Ciena explains that the traffic flows from AI and machine learning will pressure all parts of the network.
Bottom line, we think investors are pleased that Ciena's Q2 results were not as bad as feared. In fact, investors seem quite pleased. The Q3 guidance was a bit of a letdown, but again, we think it was better than feared following the cautious commentary we heard from Ciena on its last call. And finally, and maybe most importantly, it sounds like the SP market is perhaps turning a corner in terms of working down their inventory levels.
Smartsheet looking bright as company delivers solid Q1 report amid soft spending backdrop (SMAR)
For enterprise software companies, it's been a mixed bag in terms of the demand environment as some firms experience slowing spending trends within their customer bases, while others are still generating strong business despite the macroeconomic headwinds. Cloud-based work management software provider Smartsheet (SMAR) falls into the latter category, as illustrated by its upside Q1 results and upbeat guidance for Q2 and FY25. Further expressing its confident outlook, the company also announced a new $150 mln share repurchase program.
- There were some mixed signals heading into SMAR's earnings report. On one hand, large enterprise software companies like Salesforce (CMR), Workday (WDAY), and Palo Alto Networks (PANW) issued soft guidance over the past few weeks, citing elevated deal scrutiny and a more measured spending environment. On the other hand, Monday.com (MNDY) and Asana (ASAN) -- two of SMAR's closest competitors -- posted solid earnings reports on May 15 and May 30, respectively.
- Overall, though, investors remained in a cautious mode ahead of SMAR's results with shares down by about 10% since late May, prior to today's surge higher.
- That caution was also likely based on SMAR's last earnings report in March, which was disappointing due to its downside revenue guidance for Q1 and FY25. During the earnings call, CFO Pete Godbole acknowledged that the company was seeing "tighter domestic spending", particularly in the SMB segment of its business.
- In Q1, the SMB portion of the business was still relatively soft, following a similar trend as prior quarters. However, this weakness was more than offset by strength on the large account side. Specifically, the $1 mln+ ARR group -- SMAR's fastest growing customer segment -- grew by 50% yr/yr to 72 customers. In total, ARR increased by 19% to $1.056 bln, while SMAR's dollar-based net retention rate came in at an impressive 114%.
- Beyond the Q1 results and guidance, SMAR also announced during the earnings call that it's launching a new pricing and packaging model, beginning on June 24. The bottom-line of this new pricing model is that a greater number of licensed users will be set up with a lower price per user on business and enterprise plans. SMAR anticipates this shift to be modestly accretive in the near-term and more significantly accretive in the long term.
- Lastly, SMAR's AI capabilities are also driving growth. Customers are increasingly adopting its AI tools, including Smartsheet AI, which allows users to generate business logic and content with simple language prompts. Nearly half of SMAR's enterprise customers have used Smartsheet AI since the general availability launch in February.
Overall, SMAR had plenty of good news to share and its strong earnings report indicates that it's emerging as a winner in the enterprise software space amid a challenging IT spending backdrop.
lululemon athletica crawling higher on expectations of a stronger back half of FY25 (LULU)
A soft start to Q1 (Apr) in the U.S. as consumers wrangle with tightened budgets amid inflationary dynamics made investors feel quite uncomfortable when lululemon athletica (LULU +4%) warned of the troubling development last quarter. The retail athletic apparel's bearish outlook kicked off a rapid pullback, pushing shares 35% lower over the next two months.
Against this backdrop, investors were not expecting eye-popping numbers in Q1. However, the market likely wanted to, at the least, see demand begin to stabilize. Therefore, although LULU projected bearish Q2 (Jul) figures, underpinning the lingering effects of the slowdown in the U.S., its reiterated FY25 (Jan) revenue outlook and raised earnings forecast signaled that demand conditions are not expected to deteriorate further. Also, LULU's $1.0 bln increase to its share buyback plan reflects confidence in future cash flows.
- Starting with the U.S., which has endured headwinds to start FY25, both external and internal, sales inched just 2% higher yr/yr, trailing LULU's overall revenue growth of 10% (11% in constant currency) to $2.21 bln in the quarter. The tepid growth in the U.S. was also outshined by every other geographical region, including China, which soared by 52%; the Rest of the World, which jumped by 30%; and Canada, LULU's home market, which moved 12% higher (all in constant currency).
- On a same-store sales basis, the Americas, including the U.S. and Canada, was flat. International comps increased by +25%, helping pull total comps +6% higher in Q1.
- The external challenges LULU faced in Q1 were the usual suspects: inflation, interest rates, and dampened consumer sentiment. LULU's internal strife stemmed from missed opportunities, specifically in women's apparel and bags. Management commented that it did not fully capitalize on decent demand characteristics across the women's category in Q1, offering stale colors and assortments. LULU was also out of stock in some of its smaller women's sizes.
- LULU is actively working to fix its internal issues, ensuring it is in a more optimal inventory position during the back half of the year. However, in the interim, LULU anticipates Q2 results will suffer due to its problems in Q1 carrying over, projecting EPS of $2.92-2.97 and revs of $2.40-2.42 bln, both below consensus.
- However, by the end of next quarter, management is confident its new assortment can reignite consumer demand, pointing to new launches planned within its women's categories that underperformed in Q1. As a result, LULU kept its FY25 revenue guidance unchanged, targeting $10.7-10.8 bln. Meanwhile, LULU lifted its FY25 EPS outlook to $14.27-14.47, up $0.27 from its previous forecast, supported by markdown activity and airfreight costs staying relatively flat yr/yr.
LULU was up against a relatively low bar ahead of its Q1 numbers, making its decent earnings beat and unchanged FY25 revenue guidance adequate in generating some buying activity today. However, the issues from Q1 have not yet been resolved, as evidenced by weak Q2 guidance. As such, heightened uncertainty continues to hang over LULU, which may not be fully cleared until after Q2 when management anticipates much of its internal troubles to be behind it.
Five Below heads to new 52-wk low as customers tighten budgets on discretionary spend (FIVE)
Five Below (FIVE -12%) is under pressure today after reporting Q1 (Apr) results last night. The value retailer missed on EPS, revenue and comps. It provided Q2 (Jul) guidance that was well below analyst expectations. It also lowered full year guidance for EPS, revs and comps. We cautioned in our preview that this could be a rough quarter/guidance and it was. Sales reflected a more difficult macro backdrop than FIVE had expected.
- Let's start with Q1 comps, which came in at -2.3%, which was well below prior guidance of +0-2%. FIVE experienced a meaningful slowdown in sales during the back half of the quarter as the first half was propped up by tax refunds and an earlier Easter. Negative comps were driven by a decline in transactions. Also, consumers were more discerning with their dollars, increasingly buying for need and less on discretionary items.
- Customers focused more on consumable categories, such as candy, food and beverage, beauty. A silver lining is that FIVE reported positive comps from its higher income cohorts, suggesting some trade down of these customers seeking value at FIVE's stores. However, FIVE saw underperformance in the lower income demographic that more than offset these results.
- FIVE says consumers are feeling the impact of multiple years of inflation and are now far more deliberate with their discretionary dollars. FIVE saw the slowdown in all geographies, further suggesting there was a broader macro impact. As a result, FIVE guided to a mid-single digit comp decline in Q2, which assumes current trends persist, and lowered full year comp guidance to -5% to -3% from +0-3% prior guidance.
- Turning to shrink (retail theft), which was a big topic on the last call, it sounds like FIVE made some progress in Q1 with its shrink mitigation efforts. FIVE is cautiously optimistic about the progress made in Q1. Recently, it completed approximately 200 physical inventories and believes it now has a firmer handle on how to mitigate shrink, including a move toward associate-led checkouts and fewer self-checkouts.
- Despite the near term sales headwinds, FIVE remains steadfast with its store expansion plans. With 1,605 stores currently and a road map to 3,500 nationwide by the end of 2030, FIVE sees its opportunity to open in new markets and densify in existing markets as significant. In Q1, it opened 61 new stores vs 27 in the year ago period. FIVE continues to see customers excited to have a Five Below nearby.
Overall, this was a rough quarter as we expected it would be. FIVE has now reported back-to-back EPS misses after five consecutive quarters of EPS upside. Also, FIVE has now guided EPS below consensus in five of the past six quarters, which is a lot. Given the cautious commentary we heard from Dollar Tree (DLTR) and Dollar General (DG), especially about discretionary spend with lower income consumers, we were nervous heading into FIVE's report. Hopefully, results improve later this year.
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