Market Snapshot
| Dow | 39721.36 | +429.39 | (1.09%) | | Nasdaq | 18647.45 | +218.16 | (1.18%) | | SP 500 | 5633.91 | +56.93 | (1.02%) | | 10-yr Note | +1/32 | 4.28 |
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| | NYSE | Adv 2068 | Dec 690 | Vol 807 mln | | Nasdaq | Adv 2685 | Dec 1530 | Vol 5.2 bln |
Industry Watch
| Strong: Materials, Information Technology, Consumer Discretionary, Communication Services |
| | Weak: -- |
Moving the Market
-- Ongoing buying activity in mega cap stocks
-- Upside momentum following recent run in the S&P 500 and Nasdaq
-- Strength in semiconductor stocks
-- Waiting for June Consumer Price Index and start of earnings season this week
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Closing Summary
10-Jul-24 16:25 ET
Dow +429.39 at 39721.36, Nasdaq +218.16 at 18647.45, S&P +56.93 at 5633.91
[BRIEFING.COM] The stock market had a solid showing today. The major indices all jumped more than 1.0%, which had the S&P 500 (+1.02%) close above 5,600 for the first time. Today's trade featured below-average volume related to hesitation in front of the June Consumer Price Index tomorrow and the start of earnings season on Friday.
Strength in mega cap and semiconductor-related names boosted the broader market. The PHLX Semiconductor Index (SOX) logged a 2.4% gain and the Vanguard Mega Cap Growth ETF (MGK) jumped 1.0%. NVIDIA (NVDA 134.93, +3.55, +2.7%), Apple (AAPL 232.98, +4.30, +1.8%), Microsoft (MSFT 466.25, +6.71, +1.5%), and Alphabet (GOOG 192.66, +2.22, +1.2%) were among the top performing names from the spaces.
Bank stocks also outperformed the broader market in front of earnings results from some big banks on Friday. This price action led the SPDR S&P Bank ETF (KBE) to gain 2.0% and the SPDR Regional Banking ETF (KRE) to close with a 2.2% gain. Citigroup (C 66.98, +0.43, +0.7%) and JPMorgan Chase (JPM 207.80, +0.17, +0.1%) closed higher ahead of their reports and Wells Fargo (WFC 59.72, -0.16, -0.3%) logged a slim decline.
Many names participated in upside moves. The equal-weighted S&P 500 logged a 0.8% gain and all 11 S&P 500 sectors closed higher. The heavily-weighted information technology sector (+1.6%) led the pack and the financial sector (+0.4%) brought up the rear.
Fed Chairman Powell concluded his two-day semiannual testimony on monetary policy with an appearance before the House Financial Services Committee, which didn't produce any surprises like yesterday's remarks to the Senate.
The 10-yr note yield dropped two basis points to 4.28% and the 2-yr note yield settled unchanged from yesterday at 4.63%. This price action was partially in response to a strong $39 billion 10-yr note reopening.
- Nasdaq Composite: +24.2% YTD
- S&P 500: +18.1% YTD
- Dow Jones Industrial Average: +5.4% YTD
- S&P Midcap 400: +5.1% YTD
- Russell 2000: +1.2% YTD
Looking ahead, Thursday's calendar features the June Consumer Price Index at 8:30 ET. Other data include:
- 8:30 ET: Weekly jobless claims report
- 10:30 ET: Weekly EIA Natural Gas Inventories
- 14:00 ET: June Treasury Budget
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index dropped 0.2% after a 2.6% decline last week
- Wholesale inventories increased 0.2% in May (Briefing.com consensus 0.6%) following a revised 0.2% increase in April (from 0.1%)
- Weekly EIA Crude Oil Inventories showed a draw of 3.44 million barrels versus last week's draw of 12.16 million barrels
Many stocks build on gains
10-Jul-24 15:00 ET
Dow +239.56 at 39531.53, Nasdaq +179.93 at 18609.22, S&P +41.14 at 5618.12
[BRIEFING.COM] The three major indices trade at or near session highs.
Many stocks continue to build on gains, including mega cap names like Apple (AAPL 232.01, +3.33, +1.5%), Microsoft (MSFT 464.91, +5.37, +1.2%), Broadcom (AVGO 1761.84, +28.54, +1.7%), and NVIDIA (NVDA 134.27, +2.89, +2.2%).
Looking ahead, Thursday's calendar features the June Consumer Price Index at 8:30 ET. Other data include:
- 8:30 ET: Weekly jobless claims report
- 10:30 ET: Weekly EIA Natural Gas Inventories
- 14:00 ET: June Treasury Budget
CarMax, Micron outpeforming in S&P 500 at midweek
10-Jul-24 14:30 ET
Dow +195.40 at 39487.37, Nasdaq +178.61 at 18607.90, S&P +37.99 at 5614.97
[BRIEFING.COM] The S&P 500 (+0.68%) is in second place on Wednesday afternoon, up about 38 points.
Elsewhere, S&P 500 constituents CarMax (KMX 76.49, +4.23, +5.85%), Micron (MU 136.04, +4.90, +3.74%), and Mohawk (MHK 113.30, +3.32, +3.02%) dot the top of the standings despite a dearth of corporate news.
Meanwhile, California-based footwear firm Deckers Outdoor (DECK 884.24, -54.81, -5.84%) is underperforming on vague comments from tier two firm analysts.
Gold nabs modest gains ahead of inflation data
10-Jul-24 13:55 ET
Dow +208.71 at 39500.68, Nasdaq +182.39 at 18611.68, S&P +39.45 at 5616.43
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (+0.99%) remains atop the major averages, currently near HoDs.
Gold futures settled $11.80 higher (+0.5%) to $2,379.70/oz, nudging higher as yields and the dollar slip a little ahead of inflation data over the next few days.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $105.08.
Amgen, Honeywell help DJIA higher on Wednesday
10-Jul-24 13:30 ET
Dow +200.89 at 39492.86, Nasdaq +160.06 at 18589.35, S&P +35.08 at 5612.06
[BRIEFING.COM] The Dow Jones Industrial Average (+0.51%) is in last place among the major averages on Wednesday afternoon, up about 200 points.
A look inside the DJIA shows that Amgen (AMGN 322.56, +6.65, +2.11%), Honeywell (HON 213.89, +3.29, +1.56%), and Travelers (TRV 205.61, +2.47, +1.22%) hold decent gains.
Meanwhile, Visa (V 261.15, -4.29, -1.62%) is underperforming.
The DJIA is up about +0.30% week-to-date.
Elsewhere, longer-dated Treasuries have risen toward their morning highs after the just-completed $39 bln 10-yr note reopening met strong demand following yesterday's stellar 3-yr note sale. Treasuries drifted just below their opening levels prior to the auction after bouncing off their intraday lows that were reached around 11:00 ET. The market's recent bid appeared after the U.S. Treasury reopened 10-yr notes at a high yield of 4.276%, which stopped through the when-issued yield by a basis point while the bid-to-cover ratio (2.58x vs 2.52x average) and indirect takedown (67.6% vs 66.9%) were just above average. Thanks to the post-auction bid, yields on the 10-yr note and the 30-yr bond are now within a basis point of their lows from Monday.
Advanced Micro heads to multi-month highs following its $665 mln purchase of Silo AI (AMD)
Advanced Micro's (AMD +3%) roughly $665 mln cash purchase of Silo AI is spurring healthy buying activity today as shares move to their best levels since early April, before Q1 numbers triggered a sell-off. The energetic response to AMD's acquisition of an AI-related organization underpins a sustained appetite among investors for all things AI. While returns on the technology have yet to be meaningful, the market is more than willing to buy in now in anticipation of explosive growth down the line.
AI will remain the center of attention heading into earnings season, which kicks off later this week. Big tech firms are trying to outspend each other in a race to be the dominant leader in AI. AMD's battle is currently with NVIDIA (NVDA), whose GPUs, including its upcoming Blackwell platform, have remained the top choice among tech giants building their AI infrastructure. However, AMD has typically found itself in second place to NVIDIA, not a bad place to be if AI turns out to be as lucrative as many expect.
- Still, AMD is not complacent in staying at number two. By agreeing to acquire Silo AI, which bills itself as Europe's largest private AI lab, working with every vertical from automotive to energy, AMD plans to meaningfully fortify its AI business.
- Silo AI was founded in 2017 and has since been engaging in developing tailored AI models. Some of its past customers include Unilever (UL), where Silo developed an ML tool to improve packaging efficiency, and Intel (INTC), which used Silo's quality control technology.
- With experience in working with a major chip designer and manufacturer in Intel, Silo AI appears to be a solid fit for AMD. The lab will likely work side by side with AMD integrating AI rapidly into its products, possibly leading to future performance gains over NVIDIA, perhaps at lower price points.
Even with AI in the experimentation phase, companies are turning to the technology in order to not be left behind competitively if AI takes off in a significant way. The chip designers, including NVDA, AMD, and INTC will each be competing for a slice of the AI pie, and any minor advantage could translate to considerable financial gains. By agreeing to add Silo AI to its business, AMD is taking the necessary step toward grabbing a potential advantage against its peers. Whether the purchase will ultimately result in a healthy return on investment has yet to be seen. However, sitting by is not an option for chip makers during such an AI-related frenzy.
LegalZoom zooms lower on FY24 rev guidance, names new CEO with subscription expertise (LZ)
LegalZoom (LZ -27%) is zooming lower today after providing guidance last night. This provider of an online platform for business formation, legal and tax document creation actually reaffirmed Q2 revs at $172-176 mln and adjusted EBITDA at $25-27 mln. However, it did lower full year revenue guidance pretty substantially to $675-685 mln from $700-720 mln.
- Recall that the stock gapped lower following Q1 results/guidance on May 9 and then continued to fall further in subsequent weeks despite boosting its share buyback authorization by $75 mln on May 22. It is clear that the company is struggling.
- And that brings us to the other big news from last night. The company's current Chairman Jeffrey Stibel has been named as CEO, effective immediately. He replaces Dan Wernikoff who will be departing the company immediately.
- Something to understand is that LegalZoom has been increasing its focus on shifting towards subscription-based revenue. The company said that Mr Stibel possesses extensive knowledge of LZ's offerings, technology infrastructure, and attorney network, as well as the competitive landscape and customer segment. What stood out was the comment that he has been an executive officer at numerous technology services companies where he successfully scaled subscription technology offerings.
- LegalZoom started out primarily in the consumer space 20 years ago, but has evolved to being focused more on small business, which now accounts for 90% of sales. The idea is that it helps SMBs file LLC business formation documents with the Secretary of State. Then they can use LZ to organize their bookkeeping/finances and separate them from their personal life. LZ also helps with filing taxes, estate planning, pre-nups, etc.
- The company did not provide much color on the guidance, but on its Q1 call, it cited a softer macro expectation. LZ said then that it expects a mid-single-digit decline in the formations macro for the full year 2024 vs original expectations of flat to low-single-digit growth. In fairness, the macro showed strong acceleration in 2H23, creating a more challenging comparison. However, while the macro has softened, compliance requirements have increased in complexity. LZ took advantage by launching a new product to assist with the filing mandates required by FinCEN.
Overall, while LZ did not say this, we suspect the combination of a weak Q1 report with downside guidance followed by this guide down prompted a change at CEO. And specifically, the new CEO has ample experience with subscription-based technology models. LZ is moving towards subscriptions, so maybe the company wants to boost its performance there. The size of today's move is pretty surprising given that stock had already fallen by more than a third just since May. We would have thought a lot of negativity was priced in already, but clearly this guidance is spooking investors and causing many to reassess when LZ can turn itself around.
SMART Global's Q3 results and Q4 guidance shine bright; sees further AI-supported growth (SGH)
SMART Global's (SGH +16%) Q3 (May) results shine brightly enough to send its shares to gap-fill from last quarter's sell-off, maintaining its solid run from April lows. SGH, which operates three businesses, Intelligent Platform Solutions (IPS), Memory Solutions, and LED Solutions, was coming off a massive correction despite delivering similar numbers in Q2 (Feb), sending its shares as much as 35% lower. The main problem last quarter was sluggish IPS growth, a discouraging development given the segment's focus on AI and high-performance computing (HPC). It also did not help that the broader investor sentiment at the time was turning more bearish.
However, in Q3, even though IPS still experienced a yr/yr decline, it was half the drop from Q2. Furthermore, recovery within SGH's Memory business is becoming more apparent, consistent with management's remarks last quarter that the memory cycle was turning upwards. Meanwhile, LED demand improved in Q3, reversing last quarter's sequential sales contraction. As such, investors feel confident that much of SGH's woes are behind it.
- In Q3, SGH registered adjusted EPS of $0.37, topping estimates by a wider margin than in Q2, on a less pronounced top-line decline of 12.7% yr/yr to $300.58 mln, which was in line with analyst expectations.
- IPS revs compressed by 15% yr/yr to $144.97 mln, far better than the 36% plunge last quarter. The segment features SGH's Penguin-branded products, which enjoyed increased activity, including a few key customer wins, such as a multi-million-dollar non-hardware contract. The pure software win was a testament to SGH's competitive edge in helping customers get their data centers up and running. This bodes well for the future of IPS, particularly in an AI-led environment where customers purchase data center infrastructure but have trouble running it.
- Memory sales also headed lower in Q3, falling by 25% yr/yr to $83.30 mln, reflecting the ongoing inventory adjustments from customers. However, unlike in Q2, revenue climbed higher sequentially in Q3, signaling that the worst may finally be behind SGH. Management remarked that sales should only improve sequentially from here, especially as AI continues to gain steam as the tech requires high-capacity memory.
- SGH's LED business is its most minor and tends to deliver muted growth. In Q3, revenue was flat yr/yr but inched 6% higher sequentially. Management was upbeat that backlog and channel visibility were improving.
- Looking ahead, SGH predicts Q4 (Aug) revenue to potentially turn positive yr/yr for the first time since 3Q22, projecting $300-350 mln, the midpoint of which represents a 3% bump. All segments are expected to register sequential revenue growth. Similarly, the company's adjusted EPS outlook of $0.25-0.55 translates to a 14% improvement yr/yr. However, gross margins are projected to take a step back in Q4 primarily due to SGH shipping more hardware than software.
Bottom line, positivity surrounded each of SGH's segments in Q3, a noticeable difference compared to Q2. As a result, investors remain optimistic, helping the stock now recover all of its losses triggered by Q2 results.
Masimo slips to 2024 lows despite encouraging Q2 sales guidance; uncertainty remains an issue (MASI)
Masimo (MASI -2%) slips to 2024 lows today despite projecting Q2 revs modestly ahead of consensus, underpinned by meaningfully improved market share, and noting that its order backlog is robust heading into Q3. Plenty of news surrounds MASI, which operates two distinct healthcare and non-healthcare segments. The company has been discussing separating its consumer business, i.e., the non-healthcare side of its operations, for the past few months.
Yesterday, management updated shareholders on the possible consumer business separation, remarking that the "Potential JV Partner" (the company seeking to purchase MASI's non-healthcare unit) was prepared to offer $850-950 mln for MASI's consumer business on a cash and debt free basis. The offer represents around 1.2x FY24 revs. Investors did not react strongly to the offer, keeping shares from moving significantly in any direction.
Today's muted response to MASI's uplifting Q2 outlook reflects an uneasy investor sentiment over the direction MASI will pursue.
- MASI's consumer business, selling audio products, was never well-received by investors, given it never complimented its core healthcare unit, which consists of hospital monitoring products. The company's non-healthcare revs have also struggled constantly over the past several quarters, typically sliding by a wide percentage yr/yr, offsetting the relative strength of its healthcare unit.
- As such, investors are likely itching for MASI to divest of its non-healthcare unit even though the potential suitor's price was not overly compelling. In fact, even at the high end, the price offered did not reach the $1.025 bln MASI paid for the consumer unit two years ago. With discretionary spending hampered by inflationary forces, MASI's consumer business faces intense headwinds over the near term, hence the relatively weak offer.
- Alongside the uncertainty surrounding M&A, there has been some turbulence from a major shareholder, Politan Capital, which has engaged in some back-and-forth with MASI over board nominees. MASI also released a presentation highlighting the risks of ceding control to Politan Capital. Meanwhile, MASI is in the middle of litigation with Apple (AAPL) over technology used in the Apple Watch, seeking licensing for its technology.
The main takeaway is that although MASI's Q2 preliminary revenue was encouraging, too many unknowns are swirling about, pushing aside this uplifting development. Still, if focusing purely on MASI's core healthcare business, the company is in good shape, boasting strong sensor orders across the U.S. and Europe in Q1, with this upward momentum trickling into Q2 and possibly Q3. The company also continues to gain market share, putting it in a solid position to extract future upside once the current clouds clear.
CAVA Group has been serving up new highs; Mediterranean cuisine for QSR channel
CAVA Group (CAVA) has been trading to new post-IPO highs this week. And with it being a slow news day, we wanted to profile this Mediterranean fast-casual restaurant chain. CAVA's goal is to create the next large scale cultural cuisine category. Its customers span gender lines and age groups, but CAVA has a strong Millennial and a growing Gen Z contingent.
- CAVA believes it is in the early stages of fulfilling its total restaurant potential. CAVA sees an opportunity for more than 1,000 CAVA restaurants in the US by 2032 vs ending 2023 with 309 locations. Its acquisition of Zoes Kitchen in 2018 allowed CAVA to rapidly expand in new and existing markets by converting Zoes Kitchen locations to the CAVA brand, which has now been completed.
- Over 85% of its restaurants are in the suburbs. Most of its restaurants are in the Southeast, across the Sunbelt, and in the West. However, CAVA recently made its first foray into the upper Midwest, including Chicago and its suburbs.
- At a recent investor conference, the company explained that the Mediterranean diet has been the number one ranked diet seven years in a row. However, despite the health halo associations with Mediterranean cuisine, it is very underserved in the US from a restaurant cuisine category. CAVA also says it is benefitting from the country becoming more diverse and as that happens, people's palates are shifting. They are seeking bolder, more adventurous flavors but they don't want to sacrifice health.
- CAVA makes the point that this translates to incredible broad appeal across both lunch and dinner. CAVA allows customer to build a bowl to any dietary needs and preferences. Customers can eat vegan or vegetarian, or maybe they want to eliminate lactose or gluten, or they just want spicy options.
- Importantly, CAVA says its offering appeals across the income strata. The traditional full service dining model is struggling to deliver a compelling value. At the same time, fast food has been raising prices in recent years. However, consumers are saying, for $1-2 more or even the same price, they can have a healthy meal at CAVA, a great bowl of fresh food. CAVA feels it sits at the nexus of that, the convergence coming down from the higher end full service and coming up from lower end fast food.
In late May, CAVA reported Q1 results, its largest EPS beat in the last three quarters. Revenue rose a healthy 27.5% yr/yr to $259 mln. However, Q1 comps at +2.3% were maybe a bit disappointing following a +11.4% comp in Q4 and +17.9% comps for all of 2023. In fairness to CAVA, it was lapping a huge +28.5% comp last year when there was a lot of buzz around the brand as it was preparing for its IPO debut in June 2023. Also, it was good to see CAVA increase its FY24 comp guidance to +4.5-6.5% from +3-5%. That tells us that CAVA's Q1 comps were perhaps better than internal expectations. Overall, CAVA is a name worth keeping on the radar.
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