Market Snapshot
| Dow | 39308.00 | -23.85 | (-0.06%) | | Nasdaq | 18188.30 | +159.54 | (0.88%) | | SP 500 | 5537.02 | +28.01 | (0.51%) | | 10-yr Note | +28/32 | 4.361 |
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| | NYSE | Adv 1892 | Dec 863 | Vol 545 mln | | Nasdaq | Adv 2396 | Dec 1721 | Vol 3.7 bln |
Industry Watch
| Strong: Utilities, Materials, Information Technology, Industrials, Consumer Discretionary, Real Estate, Energy |
| | Weak: Health Care, Consumer Staples, Financials |
Moving the Market
-- Digesting slate of economic data
-- Hesitation in front of holiday break
-- Drop in Treasury yields acting as support for equities
-- Solid gains in many mega cap names providing support to broader market
| Closing Summary
03-Jul-24 13:30 ET
Dow -23.85 at 39308.00, Nasdaq +159.54 at 18188.30, S&P +28.01 at 5537.02
[BRIEFING.COM] The S&P 500 (+0.5%) and Nasdaq Composite (+0.9%) pushed further into record territory on this holiday-shortened session. The Russell 2000 (+0.1%) and S&P Mid Cap 400 (+0.3%) also closed with gains. The price-weighted Dow Jones Industrial Average (-0.1%) closed slightly lower than yesterday due to a decline in its top weighted component, United Healthcare (UNH 489.89, -8.35, -1.7%).
Solid gains in the mega cap space had an outsized impact on index gains, but many other stocks participated in upside moves. NVIDIA (NVDA 128.28, +5.61, +4.6%), Broadcom (AVGO 1729.22, +71.74, +4.3%), Tesla (TSLA 246.39, +15.13, +6.5%), Apple (AAPL 221.55, +1.28, +0.6%), Microsoft (MSFT 460.77, +1.49, +0.3%), and Alphabet (GOOG 187.39, +0.78, +0.4%) were standouts in that respect.
The action in some of the aforementioned names propelled the S&P 500 information technology sector to the top of the leaderboard among the 11 sectors, up 1.5% for the day. The materials (+0.8%) and utilities (+0.6%) sectors were also top performers.
The health care sector (-0.7%) saw the largest decline due to losses in UNH, Eli Lilly (LLY 898.10, -8.61, -1.0%), and others.
A drop in market rates created an upside catalyst for stocks. The 10-yr note yield is down nine basis points to 4.35% and the 2-yr note yield is down four basis points to 4.70%. The Treasury market will close at 2:00 p.m. ET.
This price action in Treasuries thus far is in response to this morning's weaker-than-expected economic data. Briefly, the ADP Employment Change Report reflected slowing growth in payrolls and the ISM Non-Manufacturing Index reflected a contraction in service sector activity (i.e. below-50 reading).
As a reminder, markets are closed tomorrow for Independence Day.
- Nasdaq Composite: +21.2% YTD
- S&P 500: +16.1% YTD
- S&P Midcap 400: +4.9% YTD
- Dow Jones Industrial Average: +4.3% YTD
- Russell 2000: +0.5% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -2.6%; Prior 0.8%
- June ADP Employment Change 150K (Briefing.com consensus 163K); Prior was revised to 157K from 152K
- Weekly Initial Claims 238K (Briefing.com consensus 235K); Prior was revised to 234K from 233K; Weekly Continuing Claims 1.858 mln; Prior was revised to 1.832 mln from 1.839 mln
- The key takeaway from the report is that initial jobless claims have kicked up a notch but continue to track comfortably below recession levels; however, it is apparent in continuing jobless claims that finding a new job after being laid off isn't as easy as it used to be, which is consistent with some slowing in the labor market.
- May Trade Balance -$75.1 bln (Briefing.com consensus -$76.0 bln); Prior was revised to -$74.5 bln from -$74.6 bln
- The key takeaway from the report is that there were declines in both exports and imports, signaling that trade demand overall was softer in May.
- June S&P Global US Services PMI - Final 55.3; Prior 55.3
- May Factory Orders -0.5% (Briefing.com consensus 0.3%); Prior was revised to 0.4% from 0.7%
- The key takeaway from the report is that business spending dropped off in May, which is consistent with a slowdown in manufacturing activity that was seen in the advance report for durable goods.
- June ISM Non-Manufacturing Index 48.8% (Briefing.com consensus 52.5%); Prior 53.8%
- The key takeaway from the report is that it signals a contraction in activity in the nation's largest sector, which should reinforce the market's expectation that the Fed will start cutting rates before the end of the year.
MSFT, AAPL propel info tech sector to higher spot
03-Jul-24 12:35 ET
Dow -60.88 at 39270.97, Nasdaq +131.27 at 18160.03, S&P +19.97 at 5528.98
[BRIEFING.COM] The S&P 500 and Nasdaq Composite continue to climb in a broad advance. Advancers lead decliners by a 5-to-2 margin at the NYSE and by a 3-to-2 margin at the Nasdaq.
The heavily-weighted information technology sector pushed to the top of the leaderboard among the 11 sectors, showing a 1.3% gain. Microsoft (MSFT 459.52, +0.21, +0.1%) and Apple (AAPL 221.20, +0.94, +0.4%) had been trading down earlier, but turned around as the market moved higher.
Separately, the weekly EIA natural gas inventories showed a build of 32 bcf versus a build of 52 bcf last week. Natural gas futures are up 1.1% to $2.48/mmbtu.
Mixed mega cap action limits index gains
03-Jul-24 12:00 ET
Dow -84.99 at 39246.86, Nasdaq +120.40 at 18149.16, S&P +16.28 at 5525.29
[BRIEFING.COM] The S&P 500 and Nasdaq Composite move further into record territory while the Dow Jones Industrial Average trades slightly below its prior close.
Some mega cap names are trading down, acting as a limiting factor for the major indices. Eli Lilly (LLY 886.96, -19.74, -2.2%) and Amazon.com (AMZN 197.76, -2.24, -1.1%) are standout in that respect, showing sizable declines. LLY hit a fresh 52-week high today before rolling over.
Still, solid gains in other mega cap names are providing some offsetting support. NVIDIA (NVDA 127.05, +4.38, +3.6%), Tesla (TSLA 244.95, +13.69, +5.9%), Broadcom (AVGO 1721.96, +64.48, +3.9%), Alphabet (GOOG 187.25, +0.64, +0.3%), and Meta Platforms (META 510.69, +1.19, +0.2%) are standouts in that respect.
S&P 500 maintains spot above 5,500
03-Jul-24 11:40 ET
Dow -48.70 at 39283.15, Nasdaq +79.56 at 18108.32, S&P +13.80 at 5522.81
[BRIEFING.COM] The major indices continue to move mostly sideways. The S&P 500 has maintained a posture above 5,500 through the entire session so far.
Only three S&P 500 sectors are trading lower now -- health care (-0.9%), consumer staples (-0.3%), and financials (-0.1%) -- while the utilities (+0.8%), information technology (+0.8%), and materials (+0.6%) sectors lead the outperformers.
Small and mid cap stocks are participating in today's broad advance. The Russell 2000 is up 0.3% and the S&P Mid Cap 400 shows a 0.4% gain.
Stocks stick to narrow ranges; WTI crude oil futures slightly lower
03-Jul-24 11:05 ET
Dow -57.56 at 39274.29, Nasdaq +45.57 at 18074.33, S&P +8.54 at 5517.55
[BRIEFING.COM] The major indices have traded in relatively narrow ranges through the session so far. The S&P 500 has moved less than 20 points between its intraday high and low.
A short time ago, the weekly EIA crude oil inventories showed a draw of 12.16 million barrels versus last week's build of 3.59 million barrels. WTI crude oil futures are down 0.1% to $82.69/bbl, trading lower after the data.
Still, the S&P 500 energy sector (+0.5%) is a top performer so far along with the information technology (+0.5%), materials (+0.8%), and utilities (+0.9%) sectors.
Constellation Brands aligns the stars for another earnings beat as beer business shines again (STZ)
For alcoholic beverage maker and distributor Constellation Brands (STZ), the saying "the more things change, the more they stay the same" seems to be very fitting after the company reported mixed Q1 results. As has been the case for many quarters, STZ's beer business was a pillar of strength, while the wine and spirits business continued to lag after undergoing a major overhaul over the past few years.
- Younger consumers in particular have been gravitating towards premium imported beers and STZ's product portfolio fits right into that sweet spot. Most notably, Mexican lager Modelo Especial has been a star for STZ, catapulting to the top of the list in dollar sales among all brands in the U.S. Led by Modelo and Pacifico, which saw impressive depletion growth of 11% and 21%, respectively, in Q1, net sales increased by 8% for the total beer business.
- Volume growth, combined with pricing and cost savings initiatives, drove operating margin higher by 260 bps yr/yr to 40.6%. This, in turn, helped push EPS higher by 23% to $3.57, beating expectations for the sixth consecutive quarter.
- While the beer business seems to be mostly insulated from sluggish consumer spending trends, the same can't be said of the wine and spirits business. STZ stated that the U.S. wholesale market across most price points in the wine category continued to face unfavorable market conditions in Q1. As such, net sales for wine and spirits declined by 7% and operating margin decreased by 370 bps to 15.3%, leading to a 25% drop in operating income to $59.7 mln for the segment.
- Although the struggles for wine & spirits currently appear to be mostly macro-related, the lack of progress in the turnaround initiative has become a source of frustration for investors. Recall that in early 2021, STZ finalized a deal to sell its lower-priced wine brands to E.&J. Gallo Winery for $810 mln in an effort to prioritize its higher end brands. At this point, it's safe to say that the deal hasn't had the positive impact on margins and earnings that STZ hoped for.
- In today's earnings press release, STZ disclosed that new commercial and operational initiatives are underway to address the market headwinds in the wine and spirits business. Whether those efforts help kickstart this long-standing turnaround plan remains to be seen. The good news for STZ, though, is that its beer business is by far the larger of the two, accounting for about 85% of total Q1 revenue.
Lastly, despite exceeding Q1 EPS estimates, STZ chose to merely reaffirm its FY25 EPS guidance of $13.50-$13.80. In fact, the company reaffirmed all of its FY25 guidance, including enterprise net sales growth of 6-7%, beer net sales growth of 7-9%, and a net sales decline of 0.5% to growth of 0.5% for wine and spirits. STZ's decision to keep its EPS outlook unchanged may be a source of disappointment, but, on the other hand, the reaffirm of its net sales guidance for wine and spirits may be providing some relief after another rough performance in Q1.
Paramount Global jumps on reports of a possible deal between Skydance and National Amusements (PARA)
In the lengthy saga over the future of Paramount Global (PARA +8%), there may finally be some certainty on the horizon following a WSJ article reporting that Skydance Media, owned by the cofounder of Oracle's (ORCL) son, is looking to shell out $1.75 bln for National Amusements to merge Skydance into Paramount. The deal is multi-faceted, but National Amusements is critical as it owns around three-quarters of PARA's voting shares.
The news comes as a bit of a surprise given that last month, reports broke that National Amusements failed to reach an agreement with Skydance over its $23/share offer. At the same time, the non-executive Chairperson of PARA, Shari Redstone, was reportedly unlikely willing to merge PARA into another company.
There have been plenty of suiters willing to strike a deal with PARA, including Apollo Global Management (APO), which offered $11.0 bln for the company's film and TV studio, and Sony (SONY), which was still lingering in the backdrop to ink a deal with National Amusements. Also, yesterday, The New York Times reported that Barry Diller was mulling a bid to take control of PARA. Today's report does not take all other possible buyers off the table, especially given how flimsy these reports have proved to be in the past. However, it is more likely that a deal could finally be reached, particularly given PARA's deteriorating financial position.
- PARA has been increasing its efforts to bring heightened awareness to its streaming platform Paramount+, bundling it with other subscription services such as Walmart+ (WMT). However, with the streaming market flooded with options, it has been challenging to stand out while keeping the attention on profitability. PARA's DTC revenue, which includes streaming, was the silver lining to a tepid Q1 report, registering a 24% bump in revs yr/yr. However, the losses continued to mount, albeit at a slowing rate, with adjusted operating income before depreciation and amortization of $(286) mln in Q1.
- While a merger would not immediately lift Paramount+ into the green, it could precede the divestiture of PARA's linear assets (traditional cable and network TV stations), allowing it to focus solely on bolstering its streaming service.
- PARA currently has no single CEO; it established an Office of the CEO, consisting of three executives, following former CEO Bob Bakish's abrupt departure in late April. The strategy of the newly formed Office of the CEO centers on PARA's streaming service and balance sheet. Since then, it has become increasingly likely that PARA will need to find a buyer. Its debt load has swelled while sales have stagnated. A possible Skydance deal could bring some debt relief through significant cash injection. Its prior deal that broke down included $1.5 bln to fortify PARA's balance sheet.
The main takeaway is that the story about PARA's near-term future may have found an ending as it becomes more likely that Skydance and National Amusements will seal a deal. However, PARA still faces many obstacles even if a merger agreement can be reached.
Six Flags Entertainment continues climbing after completing its merger with Cedar Fair (FUN)
The newly bolstered theme park operator Six Flags (FUN +3%), which completed its merger with Cedar Fair yesterday after the close, is continuing its upward momentum today. First announced in early November, the proposed ~$8 bln combination of the two dominant theme park operators across the United States (with a few in Mexico and Canada) triggered excitement among investors. Shares of FUN (formerly under the ticker "SIX") have soared by over +70% since the merger was announced.
Despite the unwavering buying interest over the past eight months, the newly combined company presents a compelling opportunity to unlock synergies -- Six Flags anticipated around $120 mln in cost savings and $80 mln in incremental EBITDA -- and maintain its current positive momentum.
- With all parks operating under one umbrella, FUN can spur traffic growth by offering season passes that can be used at all parks. Six Flags already boasted strong pass sales through April, with 2024 total pass sales ahead of 2023 by double-digits, with average prices also increasing yr/yr. Add-on sales of All Season Dining and All Season Flash passes have also been tracking ahead of last year. Offering customers even more parks and add-ons could bring a significant yr/yr boost for the 2025 season.
- By removing a competitor, FUN immediately bolsters its pricing power. While rivals still exist, including Walt Disney (DIS) and Universal Studios (CMCSA), Cedar Fair operated 13 parks across North America scattered from the West Coast to the East Coast, giving it a formidable presence. The addition of Cedar Fair's parks further diversifies FUN's revenue stream, placing less dependence on any one park or region and providing more stability.
- With how complementary the two companies' operations have been through the years, cost savings should be evident immediately. Two of FUN's current goals are to recapture attendance and aggressively seize cost savings opportunities to bolster its operating margins and return to pre-pandemic levels. With the one-two combo of pricing power and cost savings opportunities, FUN may be able to return margins into the low 40% range quicker than expected.
While we like the future of a combined Six Flags and Cedar Fair, there are still possible speed bumps down the road. The macroeconomic landscape has been stubbornly challenging. Outdoor lifestyle names from Vail Resorts (MTN), which caters to the skiing community, to camping stocks like Thor Industries (THO) and Winnebago (WGO), and pool suppliers Pool (POOL) and Latham Group (SWIM) have been facing unrelenting headwinds in the wake of elevated inflation and interest rates. FUN's near-term demand could begin enduring a sharp pullback for similar reasons.
Still, over a longer timeframe, FUN is positioned for success. The resilience of the travel industry despite macroeconomic obstacles underscores a deep desire from individuals to prioritize experiences. With such a fortified portfolio of parks across North America, FUN can continue to capitalize on this trend while beginning to unlock meaningful cost savings.
Tesla speeding to multi-month highs as Q2 deliveries exceed expectations (TSLA)
Tesla (TSLA) is speeding to its highest levels since mid-January after reporting better-than-expected Q2 vehicle deliveries of 444,000, easing fears that rising competition in China and tepid demand for EVs took an even worse toll on the company. However, on a yr/yr basis, Q2 deliveries did decline by nearly 5%, after falling by 8.5% last quarter, indicating that these headwinds haven't abated. Furthermore, in order to achieve the upside deliveries number, TSLA had to rely on more price cuts and incentives to help stimulate demand.
- In April, the EV maker lowered its prices on Models Y, X, and S, and it also reduced the price of its full self-driving (FSD) system by 33% to $8,000. TSLA's eroding automotive gross margin metric has been a focal point over the past several quarters and with these latest price cuts, it will be once again when the company reports Q2 earnings in a couple weeks. In Q1, TSLA's automotive gross margin skidded to 16.4% compared to about 19% in the year-earlier quarter, mainly due to lower ASPs.
- The disappointing start for Cybertruck, which currently is only available for sale in its most expensive version, has also weighed on the stock. TSLA didn't break out specific delivery numbers for Cybertruck in this morning's report, but based on recalls announced in June, it appears that TSLA has sold roughly 11,000 Cybertrucks since the official launch on November 30, 2024. That's a relative drop in the bucket still compared to the 422,405 Model 3 and Model Y's that TSLA delivered in Q2 alone.
- TSLA is badly in need of a new vehicle that can help reinvigorate its brand and slow the market share gains that its Chinese competitors have been achieving. On that note, China-based EV makers NIO (NIO), Li Auto (LI), and XPeng (XPEV), reported impressive June deliveries data yesterday. While the strong results showed that demand for EVs in China has strengthened recently, they also suggested that these Chinese competitors are only becoming a more formidable threat to TSLA.
- On the positive side, TSLA confirmed last quarter that its mass-market Model 2 vehicle is still in the works and that its ready to accelerate the launch of new models ahead of its previously communicated start of production in 2H25. A reiteration of that timeline will be critical when TSLA reports Q2 earnings.
The main takeaway is that TSLA's Q2 deliveries were better-than-expected, marking an improvement over Q1's sizable miss, and easing fears that demand has taken a turn for the worse. TSLA is still facing significant hurdles, such as rising competition, and that is also evidenced by the fact that deliveries were again lower on a yr/yr basis.
MSC Industrial reports in-line with recent guidance; near term view sounds cautious (MSM)
MSC Industrial (MSM) is trading slightly lower following its Q3 (May) earnings report this morning. This distributor of metalworking and MRO products reported in-line EPS. Revenue fell 7.1% yr/yr to $979.4 mln, which was also in-line. MSM is a company that Briefing.com keeps an eye on because it provides a glimpse into the industrial economy. Roughly 45% of its sales are metalworking products, and about 70% of its business is sold into manufacturing environments, both light and heavy.
- The company had just provided downside guidance on June 13, so these results were in-line with that guidance. While MSM does provide guidance mid-quarter sometimes, it tends not to guide for EPS/revs when it reports earnings. It does provide some guidance on select metrics. For FY24, MSM lowered its ADS (average daily sales) guidance to (4.7)-(4.3)% from +0-5% and it cut its adjusted operating margin outlook to 10.5-10.7% from 12.0-12.8%.
- ADS is a key metric for MSM, and it declined -7.1% in Q3, driven by non-repeating Public Sector orders in the prior year and softness in manufacturing verticals where MSM has heavy exposure. This ADS decline was an acceleration from -2.7% in Q2 (Feb), but MSM did see sequential improvement. MSM began the second half of its fiscal year with unexpected gross margin pressure following the full rollout of its web price realignment and a slower than expected recovery in ADS, particularly within its Core customer base.
- The company has responded with swift corrective actions to improve gross margins. Part of this was accelerating the rollout of its web enhancements. The good news is that MSM says the corrective actions it took during May are working. This has resulted in gross margin improvement in June vs Q3 lows in April and early May. With these issues resolved, its web price realignment initiative is now performing as planned.
- On the call, MSM was asked when heavy manufacturing might see a bottom. The company said that softness is more acute in core metalworking-related end markets, which includes machinery, equipment, metal fabrication. Also, visibility in the business is generally pretty limited because it is such a short-cycle business. That is also probably why MSM does not guide regularly.
As we suspected, the Q3 results were in-line with the recent guidance, so not a big story there. Investors were likely focusing more on commentary for Q4 (Aug) and perhaps FY25. We did not get specific guidance, but it does sound like its end markets will remain weak in the near term. What would really help would be the Fed lowering rates, which would give its customers more confidence.
On the positive side, it sounds like the online issues are subsiding, which could help restore margins going forward. Also, MSM still feels really good about where it's positioned with North American manufacturing, including macro issues like reshoring trends and the strengthening North American manufacturing footprint. But in the near term, there is more softness and limited visibility. Overall, this report does make us more cautious on industrial/manufacturing names heading into earnings season in a few weeks.
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