| | | Market Snapshot
| Dow | 39169.52 | +50.66 | (0.13%) | | Nasdaq | 17879.30 | +146.70 | (0.83%) | | SP 500 | 5475.09 | +14.61 | (0.27%) | | 10-yr Note | -7/32 | 4.48 |
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| | NYSE | Adv 899 | Dec 1871 | Vol 873 mln | | Nasdaq | Adv 1657 | Dec 2316 | Vol 5.2 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Financials |
| | Weak: Materials, Real Estate, Industrials, Consumer Staples, Health Care, Utilities |
Moving the Market
-- Inflows on first trading day of new month
-- Gains in mega-cap stocks
-- Jump in market rates leading to negative bias driving action under index surface
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Closing Summary
01-Jul-24 16:30 ET
Dow +50.66 at 39169.52, Nasdaq +146.70 at 17879.30, S&P +14.61 at 5475.09
[BRIEFING.COM] The Dow Jones Industrial Average (+0.1%), the S&P 500 (+0.3%), and the Nasdaq Composite (+0.8%) closed with gains. This price action led the Nasdaq to a fresh all-time high, driven by outsized gains in mega cap names.
Apple (AAPL 216.75, +6.13, +2.9%), Amazon.com (AMZN 197.20, +3.95, +2.0%), Microsoft (MSFT 456.73, +9.78, +2.2%), and Tesla (TSLA 209.86, +11.98, +6.1%) were among the influential winners today. Tesla was reacting to solid June deliveries from Chinese EV makers before reporting Q2 deliveries tomorrow.
There was an underlying negative bias driving today's trade, though. Declining issues led advancing issues by a 2-to-1 margin at the NYSE and by a 3-to-2 margin at the Nasdaq. The equal-weighted S&P 500 logged a 0.8% decline, the Russell 2000 registered a 0.9% loss, and the S&P Mid Cap 400 fell 1.0%.
The downside bias was driven by a jump in Treasury yields following a below-consensus ISM Manufacturing Index for June. The 10-yr note yield settled 14 basis points higher at 4.48% and the 2-yr note yield jumped five basis points to 4.77%.
Mega cap names fueled upside moves in their respective S&P 500 sectors today while cyclical sectors underperformed. The materials sector (-1.6%) was the biggest loser followed by industrials (-1.1%). The rate-sensitive real estate (-1.0%) and utilities (-0.7%) sectors were also top laggards.
The heavily-weighted information technology sector led the pack, gaining 1.3%, followed by the consumer discretionary (+0.7%) and financial (+0.2%) sectors.
- Nasdaq Composite: +19.1% YTD
- S&P 500: +14.8% YTD
- S&P Midcap 400: +4.3% YTD
- Dow Jones Industrial Average: +3.9% YTD
- Russell 2000: +0.2% YTD
Reviewing today's economic data:
- June ISM Manufacturing Index 48.5% (Briefing.com consensus 49.1%); Prior 48.7%
- The key takeaway from the report is that each component remained in a state of contraction -- except prices, which slowed from the prior month -- signaling a state of subdued activity for the manufacturing sector that fits with a slowing economy.
- May Construction Spending -0.1% (Briefing.com consensus 0.1%); Prior was revised to 0.3% from -0.1%
- The key takeaway from the report was the drag in private residential spending that was driven by a decline in new single-family construction at a time when overall housing inventory has been constrained due to a lack of inventory for existing homes.
- June S&P Global US Manufacturing PMI - Final 51.6; Prior 51.7
Looking ahead, Tuesday's economic data is limited to the May job openings report (prior 8.059 mln) at 10:00 ET.
Treasuries settle with sharp losses
01-Jul-24 15:40 ET
Dow +12.46 at 39131.32, Nasdaq +116.15 at 17848.75, S&P +7.48 at 5467.96
[BRIEFING.COM] The market is holding steady in front of the close.
WTI crude oil futures jumped 2.4% today to $83.46/bbl.
The 10-yr note yield settled 14 basis points higher at 4.48% and the 2-yr note yield jumped five basis points to 4.77%.
Looking ahead, Tuesday's economic data is limited to the May job openings report (prior 8.059 mln) at 10:00 ET.
Still trading mostly lower
01-Jul-24 15:05 ET
Dow +21.85 at 39140.71, Nasdaq +127.24 at 17859.84, S&P +10.20 at 5470.68
[BRIEFING.COM] The stock market is little changed at the index level in recent action.
Many stocks continue to trade down. The Invesco S&P 500 Equal Weight ETF (RSP) sports a 0.8% decline and eight of the 11 S&P 500 sectors are lower.
Value stocks are underperforming compared to growth stocks. The Russell 3000 Growth Index is up 0.7% and the Russell 3000 Value Index trades 0.6% lower.
Constellation Energy up on reports of Amazon's nuclear power ambitions; Cruise stocks dip in S&P 500
01-Jul-24 14:30 ET
Dow +41.83 at 39160.69, Nasdaq +111.19 at 17843.79, S&P +8.57 at 5469.05
[BRIEFING.COM] The S&P 500 (+0.16%) is in second place on Monday afternoon, up about 9 points.
Elsewhere, S&P 500 constituents Constellation Energy (CEG 205.59, +5.32, +2.66%), Ford Motor (F 12.82, +0.28, +2.23%), and Oracle (ORCL 143.36, +2.16, +1.53%) dot the top of the standings. CEG is strong after reports that Amazon (AMZN 197.72, +4.47, +2.31%) is eyeing nuclear power to satisfy energy needs to its burgeoning AI data centers, while F and ORCL benefit despite a dearth of corporate news.
Meanwhile, cruise stocks Norwegian Cruise Line (NCLH 17.76, -1.03, -5.48%) and Carnival (CCL 17.84, -0.88, -4.70%) are today's top decliners as shares remain pressured given reports about the strength of Hurricane Beryl.
Gold unsure of direction ahead of this week's jobs data
01-Jul-24 14:00 ET
Dow +41.58 at 39160.44, Nasdaq +97.00 at 17829.60, S&P +7.55 at 5468.03
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.55%) is atop the standings.
Gold futures settled less than a dollar lower (flat) to $2,338.90/oz, little changed to start the month of July as investors eye jobs data later on in the week.
Meanwhile, the U.S. Dollar Index is up less than +0.1% to $105.89.
Li Auto and other Chinese EV auto makers receive a charge as June deliveries impress (LI)
Electric vehicle sales in China are recharging amid a highly competitive market and stiff macroeconomic headwinds, as illustrated by strong June deliveries reports from Li Auto (LI), NIO (NIO), XPeng (XPEV), and others. Each of these stocks have been severely battered over the past two years due to slowing growth concerns, but they're driving higher today on the encouraging deliveries data.
- LI, which focuses on the luxury end of the EV market, saw June deliveries jump by 46.7% to 47,774 vehicles, meeting analysts' expectations. For the quarter, the company delivered 108,581 EVs, good for a 25.5% increase, bolstered by 20,000 deliveries for its recently launched L6 -- a five-seat premium family SUV. In its press release, the company stated that since Q2, it has "reclaimed the top spot in sales among China's emerging new energy auto brands."
- Meanwhile, June deliveries soared by 98% to 21,209 for NIO (NIO), setting a new monthly record for the company, while deliveries grew by 24% in June for XPEV.
- Slumping global consumer spending trends and widening cracks in its domestic real estate market have hurt China's economy, putting a dent in demand for EVs. However, the Chinese government has remained steadfast in its pledge to expand the EV market, aiming for EVs to account for 40% of all vehicles sold by 2030.
- Accordingly, the Chinese government has poured over $230 bln into the country's EV industry over more than ten years, including through hefty subsidies, according to a study conducted by the Center for Strategic and International Studies.
- Those subsidies, which now include an offer of nearly $1,400 to EV buyers who replace their gasoline vehicles, are providing another boost to EV sales. The strengthening EV market isn't only benefitting China-based manufacturers.
- In May, China deliveries for Tesla (TSLA) increased by nearly 17% month/month, following a decrease of 18% in April. It's worth pointing out that TSLA is expected to release its total Q2 deliveries report tomorrow morning with estimates calling for a qtr/qtr increase of about 15%.
The bottom line is that the strong June deliveries reports indicate that EV demand in China is charging up, although government subsidies and incentives are likely playing a significant role in the upswing.
Birkenstock Holding Plc trying to step up today following an upgrade at UBS (BIRK)
Recent IPO Birkenstock Holding Plc (BIRK +1%), a Germany-domiciled shoemaker, gapped firmly higher today following an upgrade to "Buy" from "Neutral" at UBS, citing tailwinds emerging from a better-than-expected DTC expansion strategy and an ongoing ramp-up in the Asia Pacific market. BIRK went public last October and has been trending nicely higher since. Recently, the stock popped on decent top and bottom-line upside in Q2 (Mar), fueling all-time highs of $61.83, a 51% lift from its IPO price of $41.00.
Briefing.com remarks that following a roughly 11% correction since gapping lower on a stock offering last week, current levels offer a solid entry point for buy-and-hold investors.
- BIRK manufactures a variety of clogs, sandals, and other footwear. While its brand leans more high-end, its price points span a broad range. Most of its revenue stems from the Americas (~54%), with European-based sales commanding the number two spot at around 35%. This leaves the Asia-Pacific market mostly untapped, something BIRK is currently addressing. Despite lingering demand pressure in China, a trend retail giants like JD.com (JD) and Alibaba (BABA) have discussed in recent quarters, BIRK still grew sales across the APMA region (Asia Pacific, Middle East and Africa) by 42% yr/yr in Q2.
- CEO Oliver Reichert remarked in May that APMA, particularly China, remains its most compelling opportunity for long-term growth.
- The formula behind BIRK's success in APMA and elsewhere is that it is careful not to flood the market. In BIRK's eyes, scarcity drives demand; this strategy has worked well, as illuminated by a nearly 22% pop in consolidated sales growth yr/yr in Q2. While the company is stepping up its manufacturing capacity -- a factor behind its 320 bp contraction in gross margins in Q2 -- it is unlikely BIRK will diverge from its careful allocation of products across its markets, keeping its longer-term margin profile sound.
- Also lifting margins has been resilience surrounding BIRK's DTC channel, a trend NIKE (NKE) tried to pounce on, only to backfire. What has helped BIRK was that it started with a focus on DTC while steadily signing wholesale partners to balance out its revenue stream. As a result of this attention on DTC, the channel was BIRK's fastest growing in Q2, climbing by 32% yr/yr.
BIRK's latest quarterly performance was impressive, but risks still exist. The macroeconomic landscape remains filled with headwinds, keeping the ground beneath BIRK's feet shaky, especially as it embarks on capacity enhancements. Also, while prices span a broad range, BIRK predominantly manufactures premium footwear, which could quickly endure a drop in demand if economic obstacles persist for an extended period. Premium footwear maker Capri Holdings (CPRI) has suffered six straight quarters of declining yr/yr revenue, underpinning just how unfavorable the retail environment has been.
Still, as long as BIRK continues to demonstrate how strong its brand is by maintaining excellent average selling prices, which jumped by double-digits yr/yr in Q2, and outsized DTC growth, it is well poised to continue its broader upward trend.
Walgreens Boots Alliance ailing once again as Boots executive heads for the exits (WBA)
Battered by a more cost-conscious consumer who is seeking out better values at retailers like Walmart (WMT) and Costco (COST), Walgreens Boots Alliance's (WBA) retail business has struggled, weighing on both the company and its stock, which has plunged by 67% since the beginning of 2023. Seeing the writing on the wall, WBA's turnaround plan has centered on expanding its pharmacy and U.S. healthcare businesses, while deemphasizing the retail business, including Boots UK. In fact, over the past few years, WBA has unsuccessfully tried to sell Boots, the British health and beauty retailer it acquired in 2012, prompting Boots' Managing Director, Sebastian James, to depart the company.
- According to Reuters, Mr. James is leaving Boots as WBA's attempts to sell the UK retailer have stalled out. With the cash infusion from a sale seemingly not on the near-term horizon, and with WBA accelerating its efforts to move away from the retail business, Mr. James has reportedly decided to take a new role at Veonet, a Germany-based eye surgery company.
- The departure is yet another discouraging development for a shareholder base that may be running out of patience as WBA's turnaround fails to gain traction. Divesting Boots would represent a significant step in WBA's transformation plan, generating a significant amount of capital that could be reinvested into the healthcare business. Since 2021, WBA has been looking to make a deal to sell Boots, but it has yet to receive a bid that it believes fairly values the business.
- Under WBA's ownership, Boots performance over the years has been choppy. However, it is coming off a solid Q3 in which retail same-store sales grew by 6% and pharmacy same-store sales increased by 5.8%. That performance was relatively stronger than the U.S. Retail Pharmacy segment, which delivered sales growth of 2.3% that was entirely driven by comparable pharmacy sales.
- It's not just the UK retail operation that WBA is looking to dispose of, though. During the Q3 earnings call, CEO Tim Wentworth, who took the reins last October, disclosed that WBA plans to close a substantial portion of its 8,700 U.S. locations over the next three years. More specifically, the company will evaluate closing about 25% of its locations.
- Meanwhile, WBA will also focus on improving the results of its U.S. pharmacy business. Although pharmacy has generated stronger results compared to the retail side, posting comps of +5.7% in Q3 due to healthy prescription growth, it's still facing decreasing reimbursements from pharmacy benefit managers (PBM) like CVS Caremark (CVS) and Cigna's Express Scripts (CI). The good news for WBA is that Mr. Wentworth has plenty of experience in the PBM industry, previously serving as CEO of Express Scripts.
The main takeaway is that after several years of disappointing results from WBA, investors want to see some meaningful progress on its transformation efforts and today's revelation that a divestiture of Boots isn't forthcoming may be adding to the frustrations.
Amazon jumps on reports of it planning to spend $100 bln on data centers over the next decade (AMZN)
Amazon (AMZN +1%) heads moderately higher today following a WSJ report that the e-commerce and cloud services behemoth aims to pour over $100 bln into data center infrastructure over the next decade. The move underpins a substantial bet on the future of AI as the technology requires its own physical infrastructure, with some facilities already topping $20 bln, well above what it costs to build existing data centers.
AMZN is not alone in its ambitious endeavor. For instance, Microsoft (MSFT), whose Azure business competes with Amazon AWS, spent around $30 bln last year on servers and buildings and reportedly plans to launch an AI supercomputer costing an eye-watering $100 bln by 2028. As the interest in AI proliferates, the demand for new data center construction has grown rapidly. Prominent construction and power companies have discussed the surge in data center investments across the U.S. and overseas.
- This is not the first time reports have swirled over AMZN allocating a substantial sum toward AI. In late March, Bloomberg reported that AMZN was looking to spend nearly $150 bln over the next 15 years on data centers, encompassing facilities geared toward AI and other cloud services. The sky-high numbers AMZN is committing toward maintaining its leading position in the cloud should also not come as too much of a surprise given that its CEO Andy Jassy was the former CEO of AWS for nearly two decades.
- With so much capital going into AI, the question now is whether it will produce attractive returns in the long run. Thus far, AI has not generated a compelling ROI, as AMZN commented last quarter that AWS achieved a multi-billion dollar revenue run rate on the AI front, vastly below AWS's total $100 bln run rate and a major shortfall given the billions AMZN has already invested. For instance, AMZN spent $4.0 bln on its stake in Anthropic, an AI startup, in addition to the AI chips and infrastructure.
- However, AI is still in the experimental phase, preventing organizations from aggressively pursuing the technology. While IT consulting giant Accenture (ACN) has begun bolstering its workforce to align with the potential explosion in AI demand, it has warned of a few hiccups, such as enterprises finding it challenging to scale AI due to it being a minor component of what is required, i.e., companies need to change processes, reskill its workforce, and build new capabilities.
AWS has been AMZN's standout segment over the past few quarters, bolstering its profitability and underpinning decent quarterly numbers. The strength of AWS likely provides AMZN with the confidence to move full throttle into AI despite it not yet producing much in the way of returns. Like its aggressive actions to expand its fulfillment network during the pandemic, which hit a wall a few years later, AI could hit some significant snags over the near term. Nevertheless, AMZN is building toward the long run, and in the hotly contested battle to become the leader in AI, AMZN's investments are a must.
Boeing heads higher on deal to bring Spirit AeroSystems back into the Boeing fold (BA)
Boeing (BA +2%) announced this morning it will acquire Spirit AeroSystems (SPR +3%) in an all-stock deal valued at $4.7 bln, or $37.25 per SPR share. The total transaction value is $8.3 bln, when you include Spirit's debt. Our quick take is that this deal seems to be as much about an effort to shore up safety concerns in the public eye as it is about being a necessary strategic fit. If not for the recent safety issues and criticism about farming out production to third parties, we wonder if this deal gets made.
- What is interesting is that Spirit AeroSystems was once part of Boeing but was spun off in 2005. But now it's coming back under the Boeing umbrella. Spirit is one of the world's largest manufacturers of aerostructures. Its core products include fuselages, integrated wings and wing components, pylons, and nacelles. The transaction is expected to close mid-2025.
- Boeing is by far Spirit's largest customer, but it also serves Airbus. Boeing will acquire all Boeing-related commercial operations, as well as additional commercial, defense and aftermarket operations. It also includes a separate deal whereby Airbus will acquire Airbus-related commercial work packages. In addition, Spirit is proposing to sell certain of its operations, including those in Belfast, Northern Ireland (non-Airbus operations), Scotland and Malaysia.
- Boeing believes this deal is in the best interest of the flying public, its airline customers, employees and shareholders. By reintegrating Spirit, Boeing can fully align its commercial production systems, including its Safety and Quality Management Systems, and its workforce to the same priorities centered on safety and quality.
- It has been a rough few years for Boeing as various and well-documented safety issues have taken a toll on its financials and its reputation. For example, in Q1, Boeing reported its first revenue decline in six quarters. In particular, its Commercial Airplanes segment saw revenue fall 31% yr/yr to $4.65 bln, reflecting actions to slow down 737 production to drive improvements in quality following the door plug incident at Alaskan Airlines. Boeing has also slowed 787 production.
Overall, we think bringing Spirit back into the Boeing fold makes a lot of sense. With the fuselage being such a major component of an airplane build, bringing that back in-house should help in quieting a major complaint against Boeing, namely that it farmed out too much of its production process to third parties.
We also think the pretty subdued premium is quite fair for Boeing. Normally, when a company makes a purchase with all-stock, shares of the acquiring company take a hit. However, Boeing is trading higher, which tells us investors like this deal. Finally, while the deal likely makes financial sense, we think easing the public's concerns about safety played a large role in this decision.
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