Market Snapshot
| Dow | 39127.80 | +15.64 | (0.04%) | | Nasdaq | 17805.16 | +87.50 | (0.49%) | | SP 500 | 5477.90 | +8.60 | (0.16%) | | 10-yr Note | -6/32 | 4.32 |
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| | NYSE | Adv 1213 | Dec 1515 | Vol 902 mln | | Nasdaq | Adv 1960 | Dec 2535 | Vol 5.3 bln |
Industry Watch
| Strong: Consumer Discretionary, Communication Services, Information Technology |
| | Weak: Financials, Energy, Utilities, Industrials, Materials, Health Care |
Moving the Market
-- Ongoing buying activity in some mega cap names
-- Rising rates keeping pressure on equities
-- Digesting some corporate news that garnered strong positive reactions like FedEx's (FDX) earnings and guidance
-- Overall negative bias driven by continued consolidation efforts
| Closing Summary
26-Jun-24 16:25 ET
Dow +15.64 at 39127.80, Nasdaq +87.50 at 17805.16, S&P +8.60 at 5477.90
[BRIEFING.COM] The S&P 500 (+0.2%) and the Nasdaq Composite (+0.5%) closed at or near their highs of the day after a surge of buying in the mega cap space in the afternoon trade. The Dow Jones Industrial Average closed slightly higher than yesterday and the Russell 2000 logged a 0.2% decline.
Apple (AAPL 213.25, +4.18, +2.0%), Amazon.com (AMZN 193.61, +7.27, +3.9%), and Tesla (TSLA 196.37, +9.02, +4.8%) were among the top performers from the mega cap space. NVIDIA (NVDA 126.40, +0.31, +0.3%) was another influential name in the mega cap space, trading down as much as 2.8% before turning higher ahead of the close.
FedEx (FDX 296.19, +39.81, +15.5%) also garnered attention today following better-than-expected earnings and an indication that demand is expected to improve through FY25. Meanwhile, General Mills (GIS 64.17, -3.09, -4.6%) was a standout loser after a fiscal Q4 earnings report that included a revenue miss driven by lower prices and lower volumes.
There was an underlying negative bias driving today's action. Decliners lead advancers by a roughly 4-to-3 margin at both the NYSE and at the Nasdaq.
The price action in Treasuries contributed to the underlying downside bias in equities. The 10-yr note yield settled eight basis points higher at 4.32% and the 2-yr note yield rose two basis points to 4.32% despite a solid $70 billion 5-yr note sale today. The market was also digesting a below-consensus New Home Sales report for May.
The equal-weighted S&P 500 registered a 0.4% decline and eight of the 11 S&P 500 sectors settled lower. The financial sector was among the worst performers, down 0.5%, while the consumer discretionary sector (+2.0%) led the pack.
- Nasdaq Composite: +18.6% YTD
- S&P 500:+14.8% YTD
- S&P Midcap 400: +4.7% YTD
- Dow Jones Industrial Average: +3.8% YTD
- Russell 2000: -0.4% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 0.8%; Prior 0.9%
- May New Home Sales 619K (Briefing.com consensus 650K); Prior was revised to 698K from 634K
- The key takeaway from the report is that new home sales activity languished in May, but after accounting for the upward revision to April sales, the combined two-month period was actually better than what was embedded in the consensus estimate for May (650,000) and the original report for April (634,000). Even so, it is clear that higher mortgage rates and elevated prices continue to pressure new home sales (-16.5% yr/yr).
Thursday's economic calendar features:
- 8:30 ET: May advance goods trade balance (prior -$99.4 bln), advance Retail Inventories (prior 0.7%), advance Wholesale Inventories (prior 0.2%), weekly Initial Claims (Briefing.com consensus 238,000; prior 238,000), Continuing Claims (prior 1.828 mln), May Durable Orders (Briefing.com consensus -1.2%; prior 0.7%), Durable Orders ex-transportation (Briefing.com consensus 0.2%; prior 0.4%), Q1 GDP -- third estimate (Briefing.com consensus 1.3%; prior 1.3%), and Q1 GDP Deflator -- third estimate (Briefing.com consensus 3.1%; prior 3.0%)
- 10:00 ET: May Pending Home Sales (Briefing.com consensus 2.3%; prior -7.7%)
- 10:30 ET: Weekly natural gas inventories (prior +71 bcf)
Stocks move mostly sideways ahead of the close
26-Jun-24 15:25 ET
Dow +16.96 at 39129.12, Nasdaq +31.85 at 17749.51, S&P -1.81 at 5467.49
[BRIEFING.COM] The major indices are moving mostly sideways ahead of the close.
The market-cap weighted S&P 500 is down 0.1% and the equal-weighted S&P 500 sports a 0.5% decline.
Thursday's economic calendar features:
- 8:30 ET: May advance goods trade balance (prior -$99.4 bln), advance Retail Inventories (prior 0.7%), advance Wholesale Inventories (prior 0.2%), weekly Initial Claims (Briefing.com consensus 238,000; prior 238,000), Continuing Claims (prior 1.828 mln), May Durable Orders (Briefing.com consensus -1.2%; prior 0.7%), Durable Orders ex-transportation (Briefing.com consensus 0.2%; prior 0.4%), Q1 GDP -- third estimate (Briefing.com consensus 1.3%; prior 1.3%), and Q1 GDP Deflator -- third estimate (Briefing.com consensus 3.1%; prior 3.0%)
- 10:00 ET: May Pending Home Sales (Briefing.com consensus 2.3%; prior -7.7%)
- 10:30 ET: Weekly natural gas inventories (prior +71 bcf)
Stocks hold steady
26-Jun-24 15:00 ET
Dow +26.70 at 39138.86, Nasdaq +15.61 at 17733.27, S&P -4.93 at 5464.37
[BRIEFING.COM] Things are little changed at the index level over the last half hour.
Micron (MU), Concentrix (CNXC), Levi Strauss (LEVI), and MillerKnoll (MLKN) are among the names reporting earnings after the close. Looking ahead, Walgreens Boots Alliance (WBA), McCormick (MKC), and Acuity Brands (AYI) are among the names reporting earnings in front of Thursday's open.
Elsewhere, Treasuries remain near intraday high yields. The 10-yr note yield is up eight basis points to 4.32%.
Albemarle, Campbell Soup outperforming in S&P 500 on Wednesday
26-Jun-24 14:30 ET
Dow +48.35 at 39160.51, Nasdaq +35.10 at 17752.76, S&P -1.93 at 5467.37
[BRIEFING.COM] The S&P 500 (-0.04%) is narrowly lower on Wednesday afternoon, but well off morning lows of -0.32%.
Elsewhere, S&P 500 constituents Albemarle (ALB 99.09, +6.32, +6.81%), Campbell Soup (CPB 45.57, +1.38, +3.12%), and Align Tech (ALGN 241.42, +6.19, +2.63%) dot the top of the standings. ALB saw bullish options volume this morning, JP Morgan upgraded CPB to Overweight, while medtech firm ALGN is strong alongside Dexcom (DXCM 113.13, +2.82, +2.56%).
Meanwhile, Aptiv (APTV 65.34, -8.02, -10.93%) slides to the bottom of the average on its way to four-year lows after Piper Sandler downgraded shares to Underweight this morning.
Gold lower on Wednesday with dollar, yields once again applying pressure
26-Jun-24 14:00 ET
Dow +25.00 at 39137.16, Nasdaq +44.09 at 17761.75, S&P -2.44 at 5466.86
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (+0.25%) holds the lead among its major average counterparts, up about 44 points.
Gold futures settled $17.60 lower (-0.8%) to $2,313.20/oz, pressured in part by comments from Fed Governor Bowman who thinks it's appropriate to keep the fed funds rate at current levels for some time.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $105.99.
Whirlpool gaps higher today on rumors of a possible Bosch takeover (WHR)
Whirlpool (WHR) is riding a nice wave today after Reuters reported that German conglomerate Bosch was interested in taking over the household appliance maker. Even though it commands many more lines of business than WHR, Bosch does have its own line of household appliances, typically offering products toward the higher end of the spectrum compared to WHR, which spans a broader price range.
Competition in WHR's industry is intense, as Bosch is just one of several prominent brands, including LG, Samsung, Panasonic, and Electrolux, to which WHR sold its EMEA operations last quarter. Therefore, a merger makes great sense for WHR, especially given its struggles over the past few years. The increasing interest rates have hindered the housing market (the core of WHR's business), while inflation has stimulated discretionary spending.
- Would WHR even be willing to accept a takeover offer? The company just completed its EMEA transaction, marking a major milestone in its portfolio transformation initiatives toward a higher growth, higher margin enterprise. WHR also executed the sale of its 24% stake in Whirlpool of India. Management has also repeatedly expressed confidence in the long-run dynamics of its industry, pointing to a shorter upgrade cycle due to more remote work and a considerable undersupply of new homes, creating a secular tailwind.
- However, WHR has also mentioned how competitive the market environment has been, especially regarding Asia Pacific names like LG and Samsung. Teaming up with Bosch may be the required duo to tackle competitive challenges better.
- A merger could bring outsized synergies and help WHR speed up its cost-takeout actions. Last quarter, WHR noted that cost discipline remains one of its primary focus areas, looking to increase cost takeout during the back half of 2024 and remaining on track to deliver $300-400 mln in cost savings. The possible synergies between WHR and Bosch could also help offset the drag on margins the heightened promotional environment is causing, particularly in North America.
While WHR is by no means on the brink of bankruptcy, it could use a hand at the moment. Management has repeatedly touched on the challenges within the macroeconomic landscape, which have weighed on earnings. With demand suppressed, WHR has focused on internal cost control, reducing debt leverage, and maintaining its long-standing dividend. Perhaps the best course of action to enhance shareholder value would be accepting a potential takeover offer from Bosch.
General Mills slides after falling prices and volumes result in a top-line miss in Q4 (GIS)
General Mills (GIS -4%) registers a slim earnings beat in Q4 (May) but falls short of revenue targets, ending a challenging year on a sour note. The consumer-packaged-goods titan has endured a roughly 30% correction over the past year following today's lackluster response. Elevated inflation rates have been the underlying factor as they forced consumers to find ways to stretch their incomes, producing a trade-down effect and igniting value-seeking behavior across most of GIS's customer base.
- This dynamic continued in Q4, resulting in 2 pts of volume compression, GIS's ninth consecutive drop. What was particularly disappointing was that volumes fell in Q4 despite a 4 pt drop in price/mix, the first time in years that GIS dealt with a contraction in its cumulative price/mix. Falling prices and volumes illuminate that value-seeking consumers do not just desire lower prices but quality, and it may indicate that GIS's brand loyalty is not as strong as the company may have thought.
- Management acknowledged it needs to step it up regarding the value it offers to consumers, touching on the several innovations currently in progress across its brands. Package sizes also play a meaningful role; GIS is testing larger packs of certain products while shrinking other packages.
- The culmination of the one-two punch of lower prices and volumes was a 6.3% decline in net sales to $4.71 bln, GIS's steepest yr/yr decrease since 4Q21 when it was lapping an explosive +20.7% jump during the pandemic. It also resulted in GIS's FY24 organic revenue growth landing toward the low end of its negative 1% to flat forecast.
- North America Retail and Pet lagged in Q4, enduring a 7% and 8% drop in net sales yr/yr, respectively. While GIS is still engaging in a turnaround plan within its Pet business, explaining the underwhelming performance, another soft quarter for North America Retail may be testing investors' patience. Competition remains a factor. As global supply chains stabilize, smaller competitors, including private labels, are better equipped to improve their in-store availability.
- While investors may have been forgiving of another weak quarter from GIS, the company's FY25 financial goals did not illustrate a quick turnaround. GIS projected organic net sales to either stay flat or climb by just 1% yr/yr and adjusted EPS growth to stagnate at the midpoint of its negative 1% to positive 1% forecast despite the ongoing success of its Holistic Margin Management (HMM) cost-savings plan.
FY24 contained plenty of turbulence, which is seeping into FY25. The year ahead will be more of a rebuilding year as GIS lays the groundwork to reaccelerate growth over the next four quarters. There is much to improve upon, especially given how consumers expressed that it will take more than falling prices to generate demand. GIS is focused on brand innovation, cost reduction, and cash generation in FY25 -- the company has already announced a 2% raise to its dividend. Still, as we mentioned last quarter, GIS has a lot on its plate, which could keep investors hesitant to buy in over the near term.
FedEx surges on robust Q4 report; finally returns to growth; Freight segment under review (FDX)
FedEx (FDX +15%) is up sharply after it closed out FY24 on an upbeat note last night. It posted a decent Q4 (May) beat on EPS and revenue rose 0.8% yr/yr to $22.11 bln, which was also better than expected. A couple of things on revenue. Importantly, FDX finally returned to yr/yr revenue growth after six consecutive quarters of declines. Growth was modest, but investors are happy to see any growth at this point. Also, FDX had reported eight consecutive top line misses, so it was good to see upside again.
- FDX said that the entire industry faced a challenging demand environment in FY24. It focused on what it could control and, as a result, delivered full-year adjusted earnings towards the higher end of its original guidance range, up 19% yr/yr. And that was despite a decline in revenue compared to its initial growth expectations. In Q4, while FDX saw modest yield improvement and signs of volume stabilization across segments, it still has not yet seen a notable increase in demand.
- FedEx Express segment revenue in Q4 was roughly flat yr/yr at $10.42 bln. FedEx Ground segment revenue rose 2.4% yr/yr to $8.49 bln. FedEx Freight segment revenue rose 1.6% yr/yr to $2.31 bln. FedEx noted that Ground delivered its highest adjusted operating income in company history for both Q4 and the full year. At Freight, Q4 operating income increased despite significant demand weakness. Adjusted Express operating margin increased sequentially, but declined yr/yr as expected.
- We got our first look at FY25 guidance. FDX sees adjusted EPS of $20.00-22.00 with revs growing low-to-mid single-digits, which was roughly in-line with +3.2% analyst expectations. Revenue growth is expected to be driven by improving trends in US domestic parcel and international export demand. FDX expects FY25 yields to benefit from both improved base rates and increased fuel surcharges. FDX expects to continue seeing a pricing environment that is competitive but rational.
- FedEx expects the demand environment to moderately improve as it moves through FY25. Currently, FDX expects US domestic parcel and LTL volumes to continue to improve, with the yr/yr increase growing as the year progresses. International air cargo demand from Asia accelerated in early May and is stronger vs previous expectations. Shippers are facing tightened capacity both in air and sea freight services.
- As previously announced, its contract with the US Postal Service will expire on September 29. Until then, FDX expects volumes to be near contract minimums, consistent with what it saw in Q4.
- Beside earnings, the other big news was FDX announcing that it's working with outside advisors to conduct an assessment of FedEx Freight, which FDX expects to complete by the end of the calendar year. Freight is its smallest segment and revs fell 5.7% in FY24. Freight saw significant demand weakness in Q4. However, Freight is also its highest op margin segment at 20% in FY24 vs 11.8% for Ground and just 1.9% for Express. A potential sale would help growth but hurt margins.
Overall, investors clearly like what they see in FedEx's Q4 report and its FY25 outlook. We think investors were relieved to finally see yr/yr revenue growth return and finally see upside revenue results. Neither has happened in several quarters. Demand remains a headwind, but we think investors were pleased to hear FedEx say it expects the demand environment to moderately improve as it moves through the year. And finally, investors appear positive on the Freight segment review and potential sale.
Carnival amid smooth sailing as consumers continue spending on experiences, lifting Q2 results (CCL)
Carnival (CCL +7%) enjoys smooth sailing today after registering a healthy beat-and-raise in Q2 (May) on record numbers, underscoring the compounding effect of mounting demand across its cruise brands. CCL's impressive quarterly report is not just lifting the cruise line industry, as rivals Norwegian Cruise Line Holdings (NCLH) and Royal Caribbean (RCL) spring higher, but also the general travel industry, with Expedia Group (EXPE), Airbnb (ABNB), and Booking Holdings (BKNG) all experiencing positive price action today.
The uplifting effect across the broader travel market is not without good reason. CCL's Q2 report showcased a sustained demand to spend money on experiences over things. CCL does not expect the current demand levels to dwindle anytime soon either, reiterating that the demand it is seeing is not pent-up demand. Instead, it reflects the strength of the consumer, as CCL benefits from growth in repeat guests and new guests, both of which climbed by 10% yr/yr in Q2.
- Supported by this sustained growth, CCL delivered revs, earnings, and booking levels above its guidance in Q3. Sales rose by 17.7% yr/yr to $5.78 bln, supporting a return to positive EPS at $0.11 following two straight quarters of net losses and $(0.31) in the year-ago period. Meanwhile, booking volumes continued to expand, leading to record levels for 2025 sailings. CCL added that while it is still early, the cumulative advanced booked position for 2025 is higher than that for 2024 across price and occupancy.
- Strength was broad-based, with significant yield improvement across CCL's European and North American brands, up 20% and 7%, respectively.
- Also, CCL's adjusted EBITDA surpassed the number delivered during 2Q19, marking its highest in over 15 years.
- CCL mentioned that limited inventory remains for sale for the rest of 2024, putting it in a prime position to raise ticket prices. Management also stated that over the near term, pricing on bookings taken during Q2 has continued to run higher for Q3 (Aug) and Q4 (Nov). As a result, CCL was confident in raising its FY24 (Nov) EPS outlook to $1.18 from $0.98 and issuing a 75 bp bump in FY24 net yields to 10.25%.
Since taking the reins nearly two years ago, CEO Martin Schneider has steered CCL through a choppy landscape. Mr. Schneider implemented actions to improve the company's commercial operations and strengthen its global network of ships while aggressively managing down debt and interest expenses. These actions have helped put CCL on track toward investment grade metrics, no small feat given how disruptive the pandemic was to the company's financials. It is also impressive, given how the economic landscape is far from picturesque. While consumers are not losing their ability to spend, they are more conscientious about where they allocate their budgets, producing some headwinds in consumer demand. However, by still opting to travel, a firmer base of consumers across the cruise line industry is forming, helping keep the wind in CCL's sails over the long run.
Tesla's Cybertruck dented by another recall, but rebound in China provides stock with a spark (TSLA)
Tesla (TSLA) is no stranger to vehicle recalls and the company is now facing another one, but this time the recall impacts its recently launched Cybertruck, adding to a string of disappointments for the futuristic-looking EV. According to Reuters, TSLA is recalling 11,688 Cybertrucks due to faulty windshield wipers that could reduce visibility, and it's also recalling 11,383 Cybertrucks because a trim in the trunk bed may have been improperly secured, increasing the risk that it may detach, creating a road hazard.
- To say it's been a bumpy ride for Cybertruck since its highly publicized (and oft-delayed) launch on December 1, 2023, would be a major understatement. For starters, during the launch event, TSLA announced that only its most expensive version -- which costs about $80,000 -- would be available in 2024.
- Despite that high price tag, there has been no shortage of issues with the vehicle. On April 19, the U.S. National Highway Traffic Safety Administration (NHTSA) ordered TSLA to recall every Cybertruck it had made, about 3,900 units, in order to fix an accelerator pedal that can get stuck.
- More broadly, the vehicle's expensive and rigid stainless-steel body comes with its own set of problems. For instance, some Cybertruck owners have complained about possible rusting on the panels, while others have expressed safety concerns due to the lack of shock absorption from the metal.
- Furthermore, unlike the massive recall related to TSLA's Autopilot system, which impacted more than 2 mln vehicles last December, the Cybertruck recalls will require owners to bring their vehicles into the shop for costly physical repairs. In contrast, the Autopilot system recall was more like a software update that could be done at home.
While the developments surrounding Cybertruck continue to disappoint, the news isn't all negative for TSLA today.
- Rising competition and macroeconomic headwinds have weighed on TSLA's business in China, but demand has received a jolt recently. In April, China shipments decreased by 18%, prompting TSLA to reduce its headcount by 10% at its Shanghai factory. However, in May, China deliveries jumped by nearly 17% versus April, helping to push total Q2 delivery expectations higher.
- On July 2, TSLA is expected to release Q2 deliveries with estimates calling for a qtr/qtr increase of around 15%.
The main takeaway is that the recalls add another dent to the Cybertruck story, but the financial impact should be limited given the relatively small number of Cybertrucks currently on the road. Therefore, the more upbeat sales trends in China are likely having more of an impact on the stock today.
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