Market Snapshot
| Dow | 38868.04 | +69.05 | (0.18%) | | Nasdaq | 17192.53 | +59.40 | (0.35%) | | SP 500 | 5360.79 | +13.80 | (0.26%) | | 10-yr Note | -3/32 | 4.470 |
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| | NYSE | Adv 1369 | Dec 1376 | Vol 893 mln | | Nasdaq | Adv 2132 | Dec 2168 | Vol 5.2 bln |
Industry Watch
| Strong: Utilities, Energy, Communication Services, Consumer Discretionary, Real Estate |
| | Weak: Financials, Consumer Staples, Materials |
Moving the Market
-- Turnaround action in NVIDIA (NVDA) after it began trading today following 10-for-1 stock split; gains in other mega caps boosting index performance
-- Loss in Apple (AAPL), which is conducting its Worldwide Developers Conference, acting as limiting factor
-- Jump in market rates
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Closing Summary
10-Jun-24 16:25 ET
Dow +69.05 at 38868.04, Nasdaq +59.40 at 17192.53, S&P +13.80 at 5360.79
[BRIEFING.COM] The stock market started the new week with losses, but ended the session on an upbeat note. Moves in either direction were limited, though. The S&P 500 was down 0.3% at its low of the day and closed 0.3% higher, which marked a fresh all-time high for the index. The Nasdaq Composite also logged a new record high, closing with a 0.4% gain.
The market showed nice resilience to early selling efforts, which turned into upside support.
Turnaround action in shares of NVIDIA (NVDA 121.79, +0.90, +0.8%) also provided support to the broader market. Shares had been down as much as 3.2% at session lows. This rebound action also boosted the PHLX Semiconductor Index (SOX), closing 1.4% higher after trading down as much as 0.9% earlier.
Eli Lilly (LLY 865.00, +15.01, +1.8%) was another influential winner today after an FDA advisory panel voted 11-0 to recommend LLY's donanemab as a treatment for early stage Alzheimer's disease. Other mega caps also closed with gains, leading the Vanguard Mega Cap Growth ETF (MGK) to close 0.3% higher.
Apple (AAPL 193.12, -3.77, -1.9%) was an exception in the mega cap space, extending an early loss after introducing "Apple Intelligence," the personal intelligence system for iPhone, iPad, and Mac, at its Worldwide Developers Conference.
Today's $58 billion 3-yr note sale met soft demand, but Treasuries settled little changed from levels seen before the results. The 10-yr note yield rose four basis points to 4.47% and the 2-yr note yield rose one basis point to 4.88%.
There was no US economic data of note today, but anticipation in front of Wednesday's release of the May Consumer Price Index contributed to the muted action in the stock market today. Wednesday's calendar also features the latest FOMC policy decision, which will be accompanied by an updated Summary of Economic Projections and Fed Chair Powell's press conference.
Tuesday's economic lineup is limited to the NFIB Small Business Optimism at 6:00 ET.
- Nasdaq Composite: +14.5% YTD
- S&P 500:+12.4% YTD
- S&P Midcap 400: +5.2% YTD
- Dow Jones Industrial Average: +3.1% YTD
- Russell 2000: +0.2% YTD
LLY leads market higher
10-Jun-24 15:30 ET
Dow +38.66 at 38837.65, Nasdaq +51.04 at 17184.17, S&P +11.44 at 5358.43
[BRIEFING.COM] The major indices remain near session highs ahead of the close.
Eli Lilly (LLY 867.81, +17.84, +2.1%) is an influential winner today after an FDA advisory panel voted 11-0 to recommend LLY's donanemab as a treatment for early stage Alzheimer's disease.
Separately, the 10-yr note yield rose four basis points to 4.47% and the 2-yr note yield rose one basis point to 4.88%.
Stocks move mostly sideways near session highs
10-Jun-24 15:05 ET
Dow +62.23 at 38861.22, Nasdaq +57.46 at 17190.59, S&P +13.49 at 5360.48
[BRIEFING.COM] The market is moving in a lateral flow near session highs. Market breadth is positive now at the NYSE, reflecting broad buying activity under the index surface.
Nine of the 11 S&P 500 sectors are higher. The utilities (+1.2%) and energy (+1.1%) sectors lead the pack while the health care sector (+0.2%) sports the slimmest gain among the nine sectors trading higher.
The financials sector sports the largest decline, down just 0.3%.
AAPL shares sink amid WWDC
10-Jun-24 14:35 ET
Dow +48.56 at 38847.55, Nasdaq +25.33 at 17158.46, S&P +7.98 at 5354.97
[BRIEFING.COM] The market is little changed at the index level over the last half hour.
Apple (AAPL 192.83, -4.07, -2.1%) dipped further into negative territory after introducing "Apple Intelligence" at its Worldwide Developers Conference.
Separately, the 10-yr note backed off its intraday high yield.
Many stocks move higher as indices hit intraday highs
10-Jun-24 14:00 ET
Dow +23.00 at 38821.99, Nasdaq +53.87 at 17187.00, S&P +9.87 at 5356.86
[BRIEFING.COM] The Dow Jones Industrial Average (+0.1%), S&P 500 (+0.2%), and the Nasdaq Composite (+0.4%) reached new intraday highs over the last half hour.
Many stocks participated in upside moves. The Invesco S&P 500 Equal Weight ETF (RSP) is trading 0.2% higher near its session high. Also, market breadth is more mixed now compared to earlier in the session. Shortly after the open, decliners led advancers by a 5-to-3 margin at the NYSE and at the Nasdaq. Now, advancers are roughly in line with decliners at the NYSE while decliners have a fractional lead over advancers at the Nasdaq.
Some of the mega cap stocks are trading up more than 1.0%, which is having an outsized impact on index gains. NVIDIA (NVDA 122.49, +1.60, +1.3%) is a standout in that respect after its 10-for-1 stock split.
Tesla shares could be in for a bumpy ride this week ahead of vote on Elon Musk's pay package (TSLA)
For Tesla (TSLA) and its shareholders, there never seems to be a dull moment for the leading EV maker and its eccentric CEO, Elon Musk, and there will be no shortage of buzz this week. That's because the company is hosting its annual shareholder meeting and on Thursday, June 13, it will announce the shareholder voting results from a number of items, including whether Elon Musk's compensation package was approved.
- As developments evolve ahead of that announcement, shaping investors' and analysts' predictions on how that vote will turn out, TSLA shares could be in for a bumpy ride over the next few days. For instance, over the weekend, Reuters reported that Norway's $1.7 trillion wealth fund will vote against approving Musk's $56 bln compensation package due to the size and structure of the award.
- Although the fund holds less than 1% of TSLA shares, its vote could be viewed as a gauge for how other institutional investors may land on this matter. On that note, it's also been reported that California Public Employees Retirement System -- or CalPERS -- also plans to vote against Musk's pay package.
- If the compensation package is indeed rejected by shareholders, the concern is that Musk's already diverted attention would drift even further away from TSLA at a sensitive time. The EV maker is already contending with a formidable set of challenges, including rising competition in China, slipping margins due to price cuts, and plans to launch a new affordable mass market vehicle next year.
- Therefore, a distracted and under-motivated CEO who may rather focus on his responsibilities at SpaceX or X.com would only exacerbate the problem. Of course, one could argue that Musk, with a net worth over $200 bln, shouldn't need a $56 bln pay package to perform his CEO duties to the best of his ability.
- Even if institutional shareholders skew towards rejecting Musk's compensation package, there's still a good chance that it gets approved. In fact, when the matter was initially voted on back in 2018, more than 70% of shareholders voted in favor of a very similar award, mainly due to strong support among retail investors. However, a Delaware judge made the vote null and void, asserting that the amount was egregious and unfair to shareholders. After adding some new disclosures and transparency, TSLA's Board of Directors has put the package up for another vote.
Like many things involving Musk, how this vote turns out is unpredictable and there could be some twists and turns over the next few days. Given that the pay package accumulated more than enough votes in 2018, it does seem probable that it will be approved again, removing an uncertainty and overhang on the stock.
Commercial Metals' recent correction offers attractive entry point as secular tailwinds emerge (CMC)
A long-standing component of our Value Leaders board, Commercial Metals (CMC) is a steel rebar producer trading at an attractive valuation. The company, heavily exposed to the construction market, as steel rebar is used extensively in construction and infrastructure projects from residential housing to roads and bridges, has been amid a moderate sell-off in recent trading. The stock has moved around 10% lower from mid-May highs, currently tagging its 200-day moving average (51.33). Following the minor correction, shares sit relatively flat on the year, offering a solid entry point, especially given its valuation at 11x forward earnings and mounting tailwinds.
- CMC may not be as diversified in end markets as some of its steel-making counterparts, like Nucor (NUE) and Steel Dynamics (STLD). However, the company boasts a different type of diversification: global. CMC's products are used across North America and Europe. This geographic footprint has helped cushion against relative weaknesses overseas.
- For example, during Q2 (Feb), construction activity across North America remained healthy, and management continued hearing encouraging signs from its customers, indicating their backlogs were in sound shape and were witnessing a solid pipeline ahead. These remarks aligned with CMC's internal view; the company anticipates its construction pipeline will remain healthy over the near and longer term.
- Conversely, in Europe, consumption levels remained subdued during Q2. However, given developments in recent months, CMC expects stable demand across most of its European markets, while residential construction is beginning to look poised for a return to positive growth.
- While not typically known as an AI play, CMC benefits from the outflow of capital into data center construction. CMC commented in late March that the number of data center projects in the bid stage has accelerated over the past few quarters, with the investment pouring into data center development causing demand to surpass supply. While much of this can be tied to more companies transitioning to the cloud, the current AI frenzy could significantly increase the demand for additional data centers. The company anticipates several dozen opportunities to reach the market in the coming months.
- The Infrastructure Investment and Jobs Act is spurring ground activity across many of CMC's U.S. markets, underpinning a sustained healthy construction pipeline, with consumption increasing during the back half of FY24 (Aug). For example, CMC noted that Texas has only awarded around a quarter of its transportation budget in 2024 as of late March. Meanwhile, additional notable sources of structural demand growth are emanating from manufacturing and renewable energy.
Concerns are underpinning CMC's current correction. Growth rates in Q2 were tepid, particularly in Europe, which has been a notable laggard for some time. Additionally, several projects during the quarter were delayed, hindering overall financial performance. However, CMC observed encouraging signals in Europe and believes the project delays will be short-lived. CMC also recently increased its quarterly dividend by 13%, providing investors an annual yield of 1.4%, and raised its repurchase authorization by $500 mln, showcasing the cash-generative strength of its business model. With construction activity expected to ramp during the back half of FY24 at the same time secular tailwinds are emerging, CMC's recent sell-off offers a compelling entry point ahead of its MayQ report on June 20. As always, a stop loss of around 15-20% is a good idea.
Noble trades higher as investors like deal to acquire Diamond Offshore at a reasonable premium (NE)
There was some M&A news in the energy space this morning. Noble (NE +3.6%) is acquiring Diamond Offshore (DO +9.3%) in a stock and cash deal. The transaction has been unanimously approved by the Board of Directors of each company and is expected to close by 1Q25. The implied cash and stock consideration is $15.52 per share (0.2316 NE shares, or $9.87/sh + $5.65/sh in cash), representing a premium of 11.4% to Friday's close. DO shareholders will own approximately 14.5% of Noble.
- Both companies are offshore drilling contractors for the oil & gas industry. On a combined basis, Noble will own and operate a fleet of 41 rigs including 28 floaters and 13 jackups. The deal would provide Noble with four additional 7th generation drillships and one of the most high-spec harsh environment semisubmersible rigs in the world.
- Noble's 14 working (15 total) dual BOP 7th generation drillships will comprise the leading tier one drillship fleet in the industry. Also, Noble noted that Diamond's five conventional deepwater and midwater rigs have averaged above 85% utilization over the last 3 years and currently have strong forward contract coverage. Additionally, Noble said that Ocean GreatWhite will provide Noble with a high-spec floater capable of operating in harsh environments, while the remaining five semisubmersibles are expected to contribute meaningful contracted cash flow.
- Noble should benefit from what will be a robust combined backlog of $6.5 bln with a wide diversity of customers and regions of operation. Noble believes Diamond's $2.1 bln backlog is both significantly accretive on a per share and per rig basis, but also attractively priced and structured, including an average backlog on the four 7th generation drillships of approximately two years at $460,000 per day.
- Noble also expects meaningful cost synergies. The company estimates annual pre-tax cost synergies of $100 mln, with 75% expected to be realized within one year of closing. The transaction is also significantly and immediately accretive to Noble's FCF per share and will facilitate Noble's ability to return of capital to shareholders. Speaking of which, Noble also announced a 25% increase to its quarterly dividend to $0.50/sh.
Overall, investors appear pretty happy with the transaction. This is a pretty large deal for Noble ($6.2 bln mkt cap, vs $1.6 bln for DO), but seems manageable. Typically, the acquiring company trades lower when deals are announced, especially when stock is a large part of the currency being used, as was the case here. However, Noble shares are trading higher. We think investors are happy with the 11.4% premium being pretty reasonable. We also think the addition of Diamond's rigs will fit nicely with Noble's current fleet. Diamond's backlog and capacity utilization also appear to be attractive features.
Perion Network plunges after cutting guidance as situation with Bing goes from bad to worse (PERI)
Perion Network (PERI), a provider of digital advertising and content monetization products, is crashing to its lowest levels since late 2020 after issuing downside Q2 revenue guidance and slashing its FY24 revenue guidance again. The primary issue afflicting PERI is related to changes being made at Microsoft (MSFT) Bing, which has historically been one of the company's largest advertising partners, accounting for approximately 35% of PERI's revenue as of the end of 2022. Now, however, search revenue from Bing is expected to represent less than 5% of PERI's revenue in 2H24 due to Bing's decision to "exclude a number of publishers from its search distribution marketplace."
- This decision to exclude certain publishers -- which apparently includes PERI -- is a major step in Bing's pricing strategy with its distribution partners. Recall that in early April, PERI issued downside Q1 revenue guidance and significantly cut its FY24 revenue guidance to $590-$610 mln from its prior forecast of $860-$880 mln to reflect changes in ad pricing and other mechanisms at Bing.
- These changes began to drive Revenue per Thousand Impressions (RPM) and search volume lower, but the impact from the changes at Bing wouldn't really kick in until Q2. In fact, search advertising revenue still increased by 26% in Q1.
- When PERI reported Q1 earnings about one month ago, the company reaffirmed its FY24 revenue outlook and its Q2 guidance of $118-$122 mln was actually ahead of expectations at the midpoint. Furthermore, during the earnings call, CFO Maoz Sigron characterized the company's relationship with MSFT as "strong", despite the changes in advertising prices, suggesting that Bing's decision to exclude PERI from its search distribution marketplace came as a surprise.
- It's another huge blow for the company and its investors as PERI is now expecting FY24 revenue of $490-$510 mln -- a whopping 43% below its original guidance, at the midpoints of the guidance ranges.
- Replacing the lost revenue from Bing will be a tall order and it won't happen overnight. PERI is working with other search engines to try to rebuild its search business, but the company has been working to diversify its revenue streams, most notably through its CTV and Retail Media businesses. Both businesses are generating very strong growth with CTV revenue soaring by 108% in Q1 and Retail Media surging by 134%.
- However, both businesses are also still relatively small, with CTV and Retail Media accounting for 5% and 9%, respectively, of total Q1 revenue.
The main takeaway is that the situation with Bing went from bad to worse, catching investors off-guard again. Not only does PERI face the daunting task of replacing the lost business from Bing, but it also must restore a measure of lost confidence that's now likely hanging over the company and its stock.
Apple heads lower ahead of its WWDC event today; AI to be the central theme (AAPL)
Today marks Apple's (AAPL) annual Worldwide Developers Conference (WWDC), which will start around 1:00pm ET and is expected to be centered around AI. Ahead of last year's WWDC event, shares of the iPhone maker hit record highs. A similar scenario could still unfold today despite a sluggish start, as the stock trades just 2% below all-time highs reached in mid-December following an over +20% run from April lows. Another scenario that could follow history, albeit less friendly, is a possible sell-the-news reaction following WWDC today. For the past four years, shares of AAPL reversed course and turned lower either on the day of its WWDC event or shortly thereafter.
Last year's reversal off record highs followed the unveiling of the Apple Vision Pro and its eye-watering price tag of $3499. The anticipated launch of the Vision Pro helped push shares of AAPL higher ahead of WWDC 2023, only for the reveal and the accompanying price to fail to live up to the hype. This year, AI is underpinning AAPL's mounting momentum. The company has been silent on AI relative to high-end consumer tech rivals like Google (GOOG) and Samsung (SSNLF), setting the stage for another WWDC connected to highly-anticipated announcements.
- AAPL and OpenAI (MSFT), the company behind ChatGPT, have reportedly been in discussions for some time. Shortly after a Bloomberg article surrounding AAPL and OpenAI, the news publication reported that AAPL was planning on overhauling Siri with AI. As such, investors anticipate that a Siri assistant will be more on par with Google Assistant, better at engaging in conversation and understanding voice inputs.
- However, an enhanced version of Siri is not the only AI likely embedded in AAPL's upcoming iOS 18. Given how far Google and Samsung have come with AI through photo edits, live transcription, and more, it follows that AAPL plays some catch-up. The company tends to implement features found on competing Android devices well after these users have enjoyed the updates for some time.
- While no new Apple Vision Pro devices have been rumored ahead of WWDC 2024, AAPL may announce the next iteration of its visionOS. It is unclear if any major changes will accompany the announcement.
- It is worth watching for companies AAPL may be partnering with or mentioning during WWDC today. Last year, Unity Software (U) shot up by over +20% on an Apple mention during WWDC 2023. During WWDC 2022, Affirm (AFRM) turned lower after AAPL released a buy-now-pay-later option in its Wallet app. Suppliers, including SWKS, CRUS, AVGO, QRVO, TSM, and QCOM, could also move on any impactful announcements.
With how relatively late to the AI party AAPL has been, investors have high hopes ahead of the company's WWDC event today that AAPL will unveil plenty of AI-related features to begin filling the gap created by its rivals. As has been the norm in past years, high expectations tend to go unmet by AAPL, which could spur another round of a post-WWDC sell-the-news response.
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