| | | Market Snapshot
| Dow | 38647.10 | -65.11 | (-0.17%) | | Nasdaq | 17667.56 | +59.12 | (0.34%) | | SP 500 | 5433.74 | +12.71 | (0.23%) | | 10-yr Note | +29/32 | 4.24 |
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| | NYSE | Adv 1006 | Dec 1733 | Vol 840 mln | | Nasdaq | Adv 1479 | Dec 2783 | Vol 4.9 bln |
Industry Watch
| Strong: Information Technology, Real Estate, Utilities |
| | Weak: Industrials, Energy, Health Care, Communication Services, Financials |
Moving the Market
-- Ongoing buying action in mega cap stocks providing some support to broader market
-- AI enthusiasm after Broadcom's (AVGO) quarterly results and guidance
-- Reacting to the May Producer Price Index and weekly jobless claims report, which both went the market's way in terms of rate cut optimism
-- Consolidation after solid run
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Closing Summary
13-Jun-24 16:30 ET
Dow -65.11 at 38647.10, Nasdaq +59.12 at 17667.56, S&P +12.71 at 5433.74
[BRIEFING.COM] The S&P 500 (+0.2%) and Nasdaq Composite (+0.3%) added to their record closing highs today, but market breadth was negative and other major indices closed with losses. The Dow Jones Industrial Average fell 0.2% and the Russell 2000 settled 0.9% lower.
Some normal consolidation efforts drove the underlying negative bias following a big run in many stocks. Decliners led advancers by a nearly 2-to-1 margin at the NYSE and at the Nasdaq.
Dropping market rates and solid gains in some mega cap stocks were not enough to offset the downside bias.
The 10-yr note yield fell six basis points to 4.24% and the 2-yr note yield declined six basis points to 4.69%. This price action was in response to a cooler-than-expected inflation reading in the form of the May Producer Price Index, a weaker-than-expected initial jobless claims report, and today's $22 billion 30-yr bond reopening, which was met with solid demand.
Broadcom (AVGO 1678.99, +183.48, +12.3%) was a standout from the mega cap space following its better-than-expected earnings report, outlook, and 10-for-1 stock split announcement. NVIDIA (NVDA 129.61, +4.41, +3.5%) logged a solid gain in sympathy.
Super Micro Computer (SMCI 871.10, +96.36, +12.4%) also registered an outsized gain in sympathy with AVGO. Gains in the aforementioned names boosted the information technology sector (+1.4%), which was the top performer among the 11 sectors. The rate-sensitive real estate sector (+0.5%) showed the next largest gain, benefitting from the drop in market rates.
- Nasdaq Composite: +17.7% YTD
- S&P 500:+13.9% YTD
- S&P Midcap 400: +5.5% YTD
- Dow Jones Industrial Average: +2.5% YTD
- Russell 2000: +0.6% YTD
Reviewing today's economic data:
- Weekly Initial Claims 242K (Briefing.com consensus 224K; Prior 229K; Weekly Continuing Claims 1.820 mln; Prior was revised to 1.790 mln from 1.792 mln
- The key takeaway from the report is the upward drift in jobless claims, as that will be construed as a loosening of labor market conditions that fits the Fed's script for eventually cutting rates.
- May PPI -0.2% (Briefing.com consensus 0.1%); Prior was revised to 0.1% from 0.5%; May Core PPI 0.0% (Briefing.com consensus 0.3%); Prior 0.5%
- The key takeaway from the report is that it will factor favorably in the PCE Price Index, which is the Fed's preferred inflation gauge. In other words, it is a report that is pleasing in the market's mind as providing a stepping stone to a Fed rate cut.
Friday's economic calendar features:
- 08:30 ET: May import prices (prior 0.9%) and nonfuel import prices (prior 0.7%); May export prices (prior 0.5%) and nonagricultural export prices (prior 0.7%)
- 10:00 ET: Preliminary June Univ. of Michigan Consumer Sentiment (Briefing.com consensus 73.0; prior 69.1)
Market remains near highs ahead of close
13-Jun-24 15:35 ET
Dow -82.88 at 38629.33, Nasdaq +49.69 at 17658.13, S&P +9.52 at 5430.55
[BRIEFING.COM] The market remains near session highs in front of the close.
Friday's economic calendar features:
- 08:30 ET: May import prices (prior 0.9%) and nonfuel import prices (prior 0.7%); May export prices (prior 0.5%) and nonagricultural export prices (prior 0.7%)
- 10:00 ET: Preliminary June Univ. of Michigan Consumer Sentiment (Briefing.com consensus 73.0; prior 69.1)
Major indices near session highs
13-Jun-24 15:00 ET
Dow -40.94 at 38671.27, Nasdaq +55.84 at 17664.28, S&P +11.08 at 5432.11
[BRIEFING.COM] The major indices are at or near session highs, building upside momentum. Market breadth is still negative, though. Decliners lead advancers by a roughly 2-to-1 margin at the NYSE and at the Nasdaq.
The recent improvement coincided with NVIDIA (NVDA 129.30, +4.11, +3.3%) hitting session highs and Treasury yields moving slightly lower. The 10-yr note yield moved from 4.25% to 4.24%.
Semiconductor stocks are also contributing to index gains and leading the PHLX Semiconductor Index (SOX) to trade 1.4% higher.
ADBE, RH are up in front of earnings
13-Jun-24 14:30 ET
Dow -78.08 at 38634.13, Nasdaq +47.02 at 17655.46, S&P +7.36 at 5428.39
[BRIEFING.COM] The major indices moved in a lateral flow over the last half hour.
RH (RH 279.17, -6.36, -2.2%) and Adobe (ADBE 458.80, -1.07, -0.2%) are trading lower in front of their earnings reports after the close.
Elsewhere, oil prices recovered from early losses. WTI crude oil futures are up 0.1% to $78.60/bbl.
CRM, AMZN lead DJIA; PG, JPM lag
13-Jun-24 14:05 ET
Dow -134.16 at 38578.05, Nasdaq +15.49 at 17623.93, S&P -0.10 at 5420.93
[BRIEFING.COM] Things are little changed at the index level in recent trading. The Dow Jones Industrial Average is down 0.3%.
Salesforce (CRM 230.67, -5.31, -2.2%) and Amazon (AMZN 183.87, -3.02, -1.6%) are the worst performing stocks in the DJIA.
Meanwhile, JPMorgan Chase (JPM 193.46, +1.95, +1.0%) and Procter & Gamble (PG 166.86, +1.68, +1.0%) are leading Dow components. Only nine components are trading higher while 21 components sport losses.
Dave & Buster's not having much fun today after missing Q1 EPS and sales estimates (PLAY)
Dining and entertainment company Dave & Buster's (PLAY) isn't having much fun today as shares plunge to their lowest levels of the year after missing Q1 EPS and revenue estimates. While consumers have shifted their spending habits towards experiences and entertainment, PLAY's weak results suggest that the company isn't benefiting from that trend. Adding insult to injury, the company took an $11 mln hit in Q1 due to incremental labor and marketing costs related to the rollout of its new menu, new service model, and the deployment of new systems.
Fortunately, PLAY doesn't expect those costs to repeat in Q2, but the company has plenty of other challenges on its plate.
- Most notably, this includes reinvigorating the company's sales growth. In Q1, comparable sales decreased by 5.6%, falling short of expectations, as the choppiness that PLAY described during the last earnings call persisted. On the positive side, the company stated that it's seen improving top and bottom-line trends in May and early June after scaling some of its more impactful growth initiatives.
- PLAY's growth initiatives include optimizing its marketing investments, which it believes represents its largest revenue and adjusted EBITDA opportunity, improving its menu and realizing more pricing opportunities, optimizing game prices, and opening and remodeling more stores.
- The company is further along in achieving these goals for some initiatives as compared to others. For instance, in game price optimization, PLAY completed its first increase in chip prices in over twenty years following a significant overhaul of its game system. After implementing this initial rollout, PLAY says that it saw an improvement in sales trends, spend, and amusement guest satisfaction.
- Additionally, PLAY is on track to open ten more stores in 2024 with an additional 16 units opening each year in 2025 and beyond. Over the long-term, the company continues to believe it has the potential for 550 stores. For some context, as of the end of this period, PLAY had 224 company-owned stores.
Despite the disappointing Q1 results, PLAY remains steadfast in its plan to generate $1.0 bln in adjusted EBITDA in "the coming years." Entering transactions like the sales leaseback involving two stores it executed in Q1 should help. PLAY anticipates generating $45.0 mln in proceeds upon closing that transaction, which it can reinvest into its growth initiatives. From a demand standpoint, though, PLAY has its work cut out for it and until it can show some meaningful improvement in its comps, the stock will likely have trouble establishing a sustained rally.
Signet Jewelers losing some luster today as investors ponder the strength of a 2H25 recovery (SIG)
Signet Jewelers (SIG), the world's largest retailer of diamond jewelry, is losing some of its luster after reporting mixed Q1 results that failed to convince investors that the long-awaited recovery in demand picked up steam this quarter. The main issue is that same store sales decreased by 8.9%, slightly missing expectations, driven by a lower number of transactions and a 1.6% decline in average transaction value.
- Consumers have simply been avoiding making big-ticket purchases -- especially those that require financing -- putting a ding in SIG's sales. Additionally, the rebound in the bridal market has been gradual and hasn't been strong enough to offset the broader weakness across SIG's business.
- Making matters worse, the company has struggled through some digital banner issues. In Q4, its same store sales were negatively impacted by 1% due to integration issues with the Blue Nile and James Allen digital banners, creating fulfillment problems. For this quarter, digital banner issues were a 2-point negative headwind.
The good news is the worst may now be in the rearview mirror for SIG.
- In the earnings press release, CEO Virginia Drosos noted that SIG increased its North America engagement unit sales by 400 bps, excluding digital banners, in Q1. She added that after a sluggish February, business strengthened during the quarter, with May coming in even stronger. SIG expects this momentum to continue in Q2, leading to a "positive same store sales inflection in 2H25."
- However, we believe that the stock isn't reacting positively to those encouraging comments because SIG kept its FY25 guidance unchanged. Specifically, the company is still forecasting revenue of $6.66-$7.02 bln, same store sales of -4.5% to +0.5%, and EPS of $9.90-$11.52, even though it comfortably topped EPS estimates in Q1.
- With shares trading higher by about 20% since its Q4 report on March 20 (prior to today's losses), the stock appeared to be pricing in a second half recovery. The fact that SIG didn't bump its FY25 outlook higher is creating some uncertainty regarding the strength of that rebound.
The main takeaway is that business conditions remained unfavorable in Q1, while a self-inflicted wound in the form of digital banner integration issues exacerbated the topline pressures. SIG remains optimistic about a turnaround in 2H25, but investors were hoping to see that optimism expressed through an improved financial outlook that wasn't to be.
Broadcom at all-time highs after AI lifts Q2 results; expects bottoms in certain markets (AVGO)
The appetite for AI remains ravenous, as evidenced by Broadcom's (AVGO +13%) impressive beat-and-raise in Q2 (Apr) despite enduring ongoing cyclical weaknesses in enterprises and telecoms. The semiconductor and infrastructure software giant's double-digit organic revenue growth in the quarter was almost entirely driven by AI, which exploded by 280% yr/yr. The unwavering AI demand is dwarfing cracks across AVGO's primary end markets by such a significant magnitude that AVGO was confident in raising its FY24 (Oct) revenue outlook by $1.0 bln to around $51.0 bln. AVGO also announced a ten-for-one stock split, adding to today's enthusiastic response as it makes shares appear cheaper and brings real advantages to options traders.
- VMware, a virtualization software and cloud computing platform, has also fueled AVGO's robust yr/yr revenue growth for two consecutive quarters, contributing roughly 31 pts to the company's consolidated 43.0% pop to $12.49 bln in Q2. The other 12.0 pts emanated from AI, which comprised a quarter of AVGO's total sales, up noticeably from 19% in Q1 (Jan), underscoring how much AI demand has snowballed.
- Additionally, on VMware, AVGO mentioned that its integration of the company is progressing well as it transitions all VMware products to a subscription licensing model. Management anticipates VMware revs to accelerate towards its previously outlined $4.0 bln per quarter run rate, pushing operating margins toward those in AVGO's overall Infrastructure Software segment.
- Proliferating AI spending showed up in AVGO's Semiconductors segment, specifically its networking end market, which enjoyed a 44% leap in revenue yr/yr. AVGO mentioned that its hyperscale customers are increasing their investments to scale up the performance of AI accelerators. CEO Hock Tan stated that strength in AI should continue, leading to the company's raised networking revenue growth projection to +40% yr/yr in FY24, up 5 pts from its previous forecast.
- Outside of AI and VMware, less impressive developments unfolded. In wireless, comprised entirely of sales to Apple (AAPL), revs grew just 2% yr/yr while slipping by 19% sequentially, reflecting typical seasonality. Still, for FY24, AVGO reiterated its flat growth outlook.
- Meanwhile, server storage connectivity and broadband encountered a 27% and 39% drop in sales yr/yr, respectively, in Q2. In server, AVGO is optimistic that Q2 marked a bottom, expecting a modest recovery during the back half of the year. Similarly, in broadband, where demand remains weak due to a continued pause in telco spending, AVGO forecasts a bottom to materialize sometime during 2H24 with a recovery in 2025.
With shares now up nearly +60% YTD following a 100% surge in 2023, AVGO is not without its risks, particularly from NVIDIA (NVDA), which is launching its latest Blackwell chip this year, possibly drying up demand for AVGO's custom chips. NVDA also announced the upcoming launch of their Spectrum-X Ethernet switch, potentially stepping on AVGO's toes as well. However, Mr. Tan was not concerned about NVDA, mentioning that it does not compete with this company. Still, he did note that NVDA's Ethernet offering could bring about some competition in this arena.
Nevertheless, AVGO's Q2 report showcases that AI continues to prop up AVGO meaningfully, offsetting cyclical weaknesses from troubling end-market demand across handsets and telecoms. Unless the appetite for AI among big tech starts to crumble, AVGO remains in good shape.
Oxford Industries not feeling the beach vibe; stock heads lower on Q1 miss/guidance (OXM)
Oxford Industries (OXM -3%) is heading lower following disappointing Q1 (Apr) earnings results and guidance last night. This apparel company, which owns Tommy Bahama, Lilly Pulitzer, Johnny Was, Southern Tide, Beaufort Bonnet and Duck Head focuses on the laid-back vacation vibe. OXM has now missed on EPS in back-to-back quarters following 11 consecutive beats. It also guided Q2 (Jul) and full year below expectations.
- As a vacation-focused brand, the company had been benefitting from consumers getting out to travel more as they focus more on experiences than things. However, OXM explains that, while most economic indicators remain fairly positive, consumer sentiment has dropped meaningfully from when OXM provided guidance in March. The consumer has become more cautious in her spending on discretionary items such as the fashion resort apparel, which is the core of OXM's business.
- Q1 revenue fell 5.2% yr/yr to $398.2 mln with sales declines in most of its full price channels, with an especially difficult wholesale channel where sales dropped 16%. Most of its wholesale channel partners were very cautious in their inventory purchases for spring and summer this year, and that shows up in OXM's Q1 numbers.
- The silver lining is that its forward order book is solid and OXM expects to make up about half of Q1's shortfall in the wholesale channel over the remaining three quarters of the year. Also, its fall order books are trending higher than in the prior years and inventory levels in major department stores have improved.
- Another factor in its sales decline was a change in promotional cadence and events in its Lilly Pulitzer brand. As a result, LP was the weakest brand in Q1, with sales down 9.3% yr/yr to $88.4 mln. However, OXM expects Q2 LP sales to be significantly higher yr/yr. Also contributing to the sales decline was a -7% negative comp in its DTC businesses as OXM continues to see a consumer that is more cautious.
- The good news is that Q2 comps have rebounded and are positive QTD. Also, OXM noted that, as it starts to anniversary the more cautious environment that began in Q1 last year, OXM believes the positive comp trend will continue through the remainder of the year and will result in positive comps for the full year. That includes Q2 comps in the mid-single digits and back half of the year as OXM starts to lap negative comps.
At first blush, we were surprised to see OXM's recent struggles given their older and higher net worth customers, who have generally been less impacted by inflationary pressures. At the same time, OXM's price points are quite lofty and it seems like consumers are getting more cautious with discretionary spend. We think the stock is not down more because OXM braced investors for a weak Q1 with significant downside guidance last quarter. As such, some negativity appears to have been priced in already. Also, OXM still expects full year topline growth in all brands and it will be lapping easier comps in Q2-Q4.
Pure Storage is sluggish today following an analyst downgrade; remains a compelling AI play (PSTG)
Pure Storage (PSTG) stays close to its flatline today despite receiving a downgrade to "Equal-Weight" from "Overweight" at Morgan Stanley. The data storage platform provider has enjoyed excellent appreciation on the year, nearly doubling YTD, reflecting a healthy appetite for all-things AI.
Briefing.com notes that PSTG has been pouncing on the transition among businesses worldwide to the cloud and their seemingly insatiable demand to ensure they are competitively positioned to take advantage of a secular AI trend. As a result, PSTG recently returned to double-digit revenue growth in Q1 (Apr). Despite the stock hovering around all-time highs, it still has room to run. PSTG is a compelling AI play, and it has the added advantage of benefiting from a shift toward becoming more digital, making pullbacks offer attractive entry points.
- Advances in AI have opened several doors for PSTG across many market segments. High-performance data storage warehouses are growing, putting PSTG in a prime position to add to its accelerating revenue growth. Over a longer period, upgrading all enterprise storage to cloud storage provides an even more lucrative opportunity.
- PSTG is different from others in its field because it does not require different operating systems software to tackle various storage requirements. Its platform offers uniformity and integration across different data environments. This characteristic leads to power savings, materially reducing costs for data center operators. Given the magnitude more power AI workloads require, those who can save the most power without performance loss will likely pull ahead over the long term.
- Shares of PSTG have been on a tear primarily due to AI, offsetting the lingering issues surrounding the macroeconomic environment. Management remarked last month that AI-related spending might be pressuring other parts of IT budgets, keeping the storage market from noticing any major inflection. However, despite this challenging environment, PSTG has performed relatively well, consistently exceeding analysts' quarterly earnings and revenue forecasts, underscoring the company's ability to reignite revenue growth once broader demand conditions turn.
Like others in the tech industry enjoying record-high stock prices despite a constrained economic backdrop, PSTG has been benefiting from investors' interest in buying now in anticipation of a significant ramp-up next year, fueled largely by AI. While shares are by no means cheap -- PSTG currently trades at around 40x forward earnings -- its business model showcases a competitive edge for becoming the leader in AI and cloud data storage. PSTG recently boasted a notable win with Meta Platforms (META), showcasing its technological advantage. With big tech pouring bundles of cash into building their AI infrastructure, companies like PSTG stand to benefit big, allowing for further room to run over the long term.
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